Omniwealth senior financial planner Andrew Zbik has issued a stern warning to SMSFs to avoid pushing the boundaries and accept their own compliance responsibility.
As SMSFs now account for the management of nearly a third of all superannuation in Australia, it’s critical that SMSFs are on top of their compliance, he said, especially given the different strategies available to these funds.
He suggested trustees keep these three compliance tips in mind.
1. ‘The buck stops with you’
“Even if you engage the services of an accountant or a financial planner, as trustee of your own SMSF, the buck stops with you,” Mr Zbik said.
“It is the responsibility of the trustees to ensure the fund acts within the rules and laws of the superannuation system.”
He said the easiest rule for SMSFs to understand is the sole purpose test. This rule requires all SMSF investments to be only for the purpose of generating income for retirement.
This means an SMSF that leases its investment property to a member of the fund or a related fund would be in breach of the test.
2. ‘Keep good records’
SMSFs often fall foul of the ‘in-house-assets’ test, Mr Zbik continued.
An in-house asset is where a fund could own partial interest in an investment that is also owned by one of the SMSF’s members.
“This is one of the most common types of breaches. Without good record keeping of the fund’s investment activities and the decisions made by the trustees, breaches around areas such as in-house assets become common,” Mr Zbik said.
He said it’s critical to maintain records of all investment decisions.
Further, Mr Zbik argued that with the ATO’s continuous reporting obligations, any SMSF whose accountant is not moving to a monthly reporting basis should consider a new accountant.
The same goes for financial planners, he added.
“I always pre-schedule my next review with clients six-months in advance. This way we are always on top of the financial position of the SMSF,” Mr Zbik said.
“If your financial planner does not -pre-schedule reviews with you – time to get a new pro-active planner.”
3. ‘Don’t be cute’
“SMSF rules and regulations are not something to be pushed,” Mr Zbik said, noting that SMSFs that lend money to members are also breaking the rules.
“Sometimes clients will ask me to push the boundaries with what an SMSF can do … [However] reminding clients that the consequences of being rendered a non-complying fund by the ATO is that 45 per cent of the gross value of the fund’s assets will be paid to the ATO seems to always stop any attempts to push the boundaries.”