Self-Managed Super Funds (SMSF) give trustees a unique opportunity to manage their own superannuation investments and make their own investment choices, something that you can’t do with regular superannuation funds. You have control over how your retirement savings are invested and can decide where you want to invest in, for example, property. The typical duties of a trustee include: coming up with an investment strategy, accepting contributions and paying benefits. The ATO has released some top tips on how to ensure your fund remains compliant.
1. Don’t get any benefits pre-retirement
You must not use the SMSF to get any current day benefits, otherwise, you could face penalties such as the loss of your tax concessions (one of the main reasons you take out a SMSF), excessive funds of up to $220,000 or up to five years’ jail time. You can’t use your fund for anything other than non-retirement investments. You can’t use your fund to go on a holiday or pay bills. Trustees are prohibited from borrowing money from the SMSF pre-retirement (with some exceptions) and all transactions must be made at arm’s length. Although you can purchase assets such as artworks, you cannot enjoy a direct or indirect benefit from the investment by putting it on display in your home prior to retirement.
2. Your family can’t benefit either
A fund is prohibited from lending money to a member of the fund or a relative of a member. SMSFs are also prohibited from providing financial assistance to a member or a member of a relative, whether directly or indirectly. For example, you can’t use your SMSF as security for your child’s mortgage. Trustees are also generally prohibited from acquiring non-cash assets from related parties, for example, a rental property.
3. Understand the sole purpose of your fund
It’s important that the sole purpose of your SMSF is to provide for its members in retirement. To get the full tax concession available, you must be able to pass the sole purpose test. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependents if a member dies before retirement. Decisions must be based on increasing returns to your fund and you must consider any associated risks. As you progress along in life, the mixture of assets you invest in may change due to the circumstances and needs of yourself and other members.
4. Make sure the paperwork gets done
Trustees have a range of responsibilities that go well beyond those of a normal super fund. Trustees must keep all records up to date and value assets at their current market value at least once a year. You will also need to prepare financial statements, lodge an annual return and report contributions. Along with this, income returns will need to be lodged every year. Fortunately, an accountant can help you with this and do many of these duties on your behalf but it’s ultimately your responsibility to make sure they are done and lodged correctly with the ATO.
5. Don’t forget the audit
The ATO also requires you to audit your SMSF every year. This audit must be carried out by an approved SMSF auditor who is registered with ASIC. The auditor can’t be a trustee of the fund and it also can’t be your accountant. An audit is also required even if you have not made any contributions for the year. If any auditor picks up on any contraventions of super or tax law, you must fix this. The ATO are on hand to help you rectify any mistakes.
For more information on the full range of rules associated with SMSFs, please go to the ATO‘s website – or get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
