Do you have a Self-managed Superannuation Fund (SMSF)? Or are you thinking of setting one up? If either of these apply to you, you should read on to find out more about the common mistakes Trustees of self-managed superannuation funds make and how they can be avoided.
Loans to members
This is the most common breach reported by auditors to the ATO each year.
Members (and their relatives) are prohibited from borrowing funds from their SMSF, including short term loans. Doing so will result in a breach of the Superannuation rules for which penalties can apply.
Use of SMSF assets by members or associates
Assets acquired by an SMSF are not to be used by members or their associates.
The most common error made by trustees is in relation to residential property.
Members and their associates are not permitted to live in residential property held by the super fund, even if the rent is paid at market value. A related party can however rent a commercial property owned by the Fund provided all dealings are at arm’s length.
Incorrect market value for assets
It is essential that assets are valued at market value – especially once the Fund is in pension phase, as the market value of the assets affects the minimum pension requirements for the following year.
Not keeping accurate records or not keeping them for long enough
Trustees are required by law to keep proper and accurate records for a minimum of 5 years. More permanent documentation (i.e. Trust Deeds) should be kept indefinitely.
Assets not in line with the fund’s investment strategy
The investment decisions made by the fund must be in accordance with an investment strategy. The investment strategy should be reviewed regularly to ensure the fund’s investments are in line with the strategy and updated at any point where the fund’s investments fall outside those specified in the strategy.
Assets set up in the wrong name
All assets of the fund are required to be in the name of the fund. Bank accounts, shares and life insurance policies are some of the assets most commonly set up with the incorrect holding name.
Where an asset is not held in the name of the fund, the trustees should rectify this as soon as possible.
Out of date trust deed
Trustees are required to ensure the fund trust deed remains up to date and makes provisions for any changes in legislation. Due to the ever-changing nature of the superannuation laws, the deed should be reviewed and upgraded where major changes happen in legislation or within the fund (i.e. a member commencing a pension)
If you are unsure if any of the above apply to you or your SMSF, contact your PJT advisor to discuss further.