If you have an Self Managed Super Fund (SMSF) you might well be looking over your shoulder a bit more this year.  The ATO has announced SMSFs, especially new ones, are its main target.  They have even released a prosecution strategy to show how serious they are!  The ATO is definitely lawyering-up and getting ready to delve into the affairs of an SMSF near you!

If I am a trustee, what am I responsible for?

The short answer is everything. 

Each and every trustee of an SMSF is responsible for compliance. You are responsible for the accounting records, the financial statements, appropriate investments, adherence to relevant legislation and lodgement dates.

So does this mean that only accountants with law degrees should have their own SMSF? No, SMSFs are still an incredibly powerful investment vehicle for your retirement, but now, more than ever, you need the right support network around you.

Your accountant and auditor will guide you to ensure the fund is administered in accordance with the ever changing rules, your financial adviser will advise on the best investment mixes and Civic Legal and LawCentral can provide the necessary updates and other legal documentation to keep your deed compliant, but ultimately, you as trustee are responsible, and mistakes can be made. Prompt action can assist in reducing penalties or avoid the withdrawal of compliance certification.

Sometimes mistakes are made or sometimes actions are taken out of financial desperation. The usual error arises from the members getting a benefit from the fund or the use of the fund to finance their business or that of a relative or to sustain their personal lifestyle before they are allowed to. Conversely, the attractive tax rates of an SMSF can be highly tempting for those with surplus income wanting to stretch the contribution limits each year.

The underlying error for trustees is to assume that the funds they are saving belong to them. In effect the Tax Office also has a vested interest to ensure that the tax advantages given to the fund are preserved for the intended purpose of the fund.

Mistakes happen - What to do then?

Specialist superannuation lawyers can prepare appropriate remedial action to document to nature of the mistake and to offer a rectification plan. A feasible strategy and a properly documented action plan may assist in avoiding criminal prosecution or withdrawal of the fund’s compliance status.

Platinum readers read on.

Can the fund buy the family home?

Whilst you generally have the freedom to decide what your fund invests in, there are some things that you simply can’t do.  One of these is buying assets from members of the fund or any related party.  This means that if you, your spouse or any member of the family owns the home, the fund can’t buy it.  The ban on buying assets from related parties means that the fund also can’t buy the home of your sister, brother, child or even Grandma Mabel.  The ban extends to any companies that are run or controlled by members or their relatives. 

All SMSF investments also need to be made on commercial terms.  You have to be able to show that what you bought the asset for reflects its true market value.  Likewise, the income from assets held by your fund should always be based on a true market rate of return.  Generally it is best to get a valuation and stick to it. For more information on SMSF investments read Leasing Business Real Property from SMSF from our Bookshelf.

Can the fund finance a related business?

Loans unsecured or partly secured to a related business raise issues regarding the purpose of the trustee in taking this course of action. Watch out, as unsecured loans or provision of benefits to a related party is not generally considered to be solely for the benefit of the members’ retirement.

Can I access my super early?

There have been a few schemes. Unless you meet one of the conditions of the fund or can gain an exemption under the rules you cannot access your super early.  The ATO takes a dim view of anyone accessing their super early and will pursue them and the scheme promoters with the full force of the law.

Can I benefit from my super assets before being eligible?

Definitely not. This has been a longstanding rule that you cannot buy a ski chalet or holiday home for the family using your super fund assets. You can buy the asset but you cannot use the asset. Same goes for art works, wine, coin collections etc.

What happens if I break the rules?

Act promptly. Set in place a plan of action that can remedy the breach and avoid any financial loss to the fund. This includes, but is not limited to refunding amounts to the fund.

The ATO has power to class your SMSF fund as a non-complying fund.  This means the fund will then have to pay tax at the highest marginal tax rate.  Each trustee could also receive a fine which they will be personally liable to pay.  You could even go to prison. 

What do I need to do now? 

If anything we have said is ringing alarm bells about how you are running your SMSF you need to seek advice now.  Tim Pepper and Civic Legal have years of experience in fixing problems with SMSFs and preparing remedial strategies to try and preserve the tax concessions offered to complying funds.  The first piece of advice is don’t bury your head in the sand.  You need to act as soon as you can to address the problem.

• Self Managed Superannuation Fund Deed
• SMSF - Deed Update
• Pension Pack
• Product Disclosure Statement
• SMSF - Minute to Appoint an Administrator
• SMSF - Minute to Appoint an Auditor
• SMSF - Minute to Approve Financial Statements
• SMSF - Minute to Insure the Members
• SMSF – Revert to Accumulation Phase
• SMSF – Update Trustees and Members
• Investment Strategy for Self Managed Super

• Issue 411: Protect your company from your employees
• Issue 410: Don’t get caught out:  The risky business of employment contracts
• Issue 409:  Who do you trust?  Choose your Enduring Power of Attorney while you still can
• Issue 408: Will you add it to your EoFY checklist?
• Issue 407: Leasing Business Real Property from SMSF