02 Jun You might be small, but your SMSF isn’t
Most self-managed super funds consist of two members, usually a husband and a wife – your typical ‘Mum and Dad’ type of situation. As a result, because you think you’re small, you forget that your SMSF isn’t small and insignificant at all – it is a legal entity with strict reporting and compliance requirements. And the ramifications of not complying with those regulations can be very big indeed.
As trustees of a SMSF, you’re responsible for complying with the relevant super and tax laws. The buck stops with you. And the government is taking a very serious view on self-managed super funds who try to bend the rules and don’t take their obligations seriously. Effectively managing a SMSF takes time and should be done with appropriate advice from professionals, including financial planners, accountants and SMSF auditors.
So, what are some of the requirements you need to be aware of?
First of all, you need to make sure your fund is set up correctly. In order to be eligible for tax concessions and to make administration easy, you’ll need to determine the correct structure of your fund appropriate to your situation, create and execute a trust deed and appoint trustees.
Give (my fund) the money
You need to be aware of the restrictions that are in place for some forms of contributions and rollovers from other funds. These restrictions vary depending on the member’s age and the relevant contribution caps.
Hands on – but hands off – investing
One of the benefits of a SMSF is that you can make active decisions about how your super should be invested. But you need to manage your SMSF’s investments in accordance with the law and in the best interests of fund members. Investment decisions need to be regularly reviewed and appropriately documented. It’s also vital to note that the fund’s investments must be separate from all personal and business affairs of fund members – this means keeping clear documentation of ownership of assets, especially where the super fund trustee may also be the family trading company, or not allowing family members to use a rental property/holiday home owned by the super fund.
Give me the money
There are also strict rules about when you can access the fund’s money. Under general circumstances, your SMSF can only pay out your super when you reach ‘preservation age’ and meet one of the conditions of release, usually retirement. Like other super funds, you can opt for an income stream (like a pension) or a lump sum, according to your circumstances. Significant penalties are imposed for releasing super benefits before release conditions are met, and the illegal release of funds is on the ATO’s hit list for this financial year.
Wind it up
Maybe all the members and trustees have left the SMSF, or maybe all the benefits have been paid out of the fund. Whatever the reason, at some point you will need to wind up your SMSF and there are reporting responsibilities as part of this process. This involves:
- Complying with any requirements in the trust deed about winding up the fund
- Paying out or rolling over all super benefits
- A final audit by an approved SMSF auditor
- Lodging a final SMSF annual return, including wind up details
- Paying any outstanding tax
- Closure of the fund’s bank account
Reporting time – again?
We know, that financial year seems to roll around quickly. It is the trustees responsibility and obligation to ensure that your fund it meeting its annual reporting obligations. The minimum requirement is an annual audit of your fund, keeping appropriate records, and lodging an annual return with the Australian Tax Office. As the trustees, you must ensure you allow sufficient time for busy accountants to be able to prepare the financials and tax return and also have these audited prior to yearly lodgement due dates, generally mid-May each year. This means you should be sending your paperwork or data file to the accountant prior to April every year.
What are the penalties for non-compliance?
The main enforcing body for SMSF compliance is the Australian Tax Office. The ATO will assess non-compliance on a case by case basis and penalties can include:
- Education direction
- A rectification direction
- Administrative penalties, including fines of up to $10,200 per breach (penalty units are assigned to various provisions of the act, with each penalty unit valued at $170). Penalties cannot be paid from the fund
- Disqualification of a trustee
- Civil and criminal penalties, including possible jail time
- Issuing a non-compliance notice, which will result in the fund losing its tax concessions and being taxed at the highest marginal rate
- Freezing an SMSF’s assets
The good news is that the Australian Tax Office is focused on encouraging SMSF trustees to comply with super laws, and will work with you to help you achieve compliance. At TABS, we believe that almost any problem can be fixed with proactive action. Rather than ignoring problems, we can work together with you, your accountant and the ATO to achieve a reasonable outcome for all parties involved. There’s plenty of help available and the first, and most important step, is asking for it..