Hi Jean

Thanks, I agree there are different views in the industry.

Per the ATO at:

https://www.ato.gov.au/super/self-managed-super-funds/in-detail/smsf-resources/smsf-technical/smsf-deductibility-of-expenses/

"Example: Borrowing expenses – capital in nature

Nick's SMSF engages a legal firm to set up a trust to hold an asset. The fund intends to acquire the asset under a limited recourse borrowing arrangement (LRBA). This is required by the super law.

Section 25-25 of the ITAA 1997 is a specific deduction provision. It enables the deduction of expenses incurred for borrowing money used to produce assessable income. The fund claims the following borrowing expenses:

• loan establishment fees

• obtaining relevant valuations

• costs of documenting guarantees required by the lender

• lender’s mortgage insurance

• fees for property and title search fees, costs for preparing and filing mortgage documents, etc.

The fund can't claim the costs in establishing the trust for the LRBA as they are not borrowing expenses. They are incurred to establish the arrangement for borrowing, not for the borrowing itself. Therefore, the SMSF can't claim a deduction for legal expenses in setting up the trust.

Also, the fund can't claim the costs as a deduction under the general deduction provision. This is because they are capital in nature."

Based on the ATO view the bare trust establishment costs are not deductible but are capital in nature.

Thanks

SMSF AAA