Trustees who overlook important details or are reported to the ATO, risk incurring financial, civil or criminal penalties.
The role of the trustee should not be taken lightly as with greater control, comes greater responsibility should the administration of your SMSF go awry.
Protect your retirement nest egg and avoid these common SMSF trustee mistakes.
Breaching the sole purpose test
SMSFs must be maintained for the sole purpose of providing retirement benefits to your members, or their dependents if a member dies before retirement. You will fail the test if a member gets any financial benefit through an investment, aside from increasing the return to your fund. For example, a member’s personal use of a holiday house purchased by the fund, without making rental repayments, would breach the sole purpose test. The rules can become complex, which is why seeking professional advice may be wise. Trustees who breach the sole purpose test will lose their fund’s concessional tax treatment and could be liable for civil and criminal penalties.
Financial assistance and member loans
Trustees can make the error of accessing their SMSF funds at will instead of following strict super laws. You cannot access your SMSF bank account to give financial assistance or loans to members or member’s’ relatives, improve your cash flow, repay debts or make personal investments. There have also been reports of withdrawals from SMSFs accidentally on mobile banking apps. Avoid ATO sanctions and keep your bank accounts separate to ensure no premature withdrawals are made from your SMSF account.
Lagging on paperwork
SMSF trustees must comply with demanding reporting and recordkeeping requirements. Your SMSF will have an annual audit. Failure to produce certain documents or make the deadline date may result in your SMSF being reported to the ATO. It is crucial to keep accurate records of all decisions and transactions should the ATO take an interest in your SMSF. Consider having a third party prepare regular financial statements to be renewed with your financial advisor.
Not planning for the death or illness of a member
The death or illness of a member of your SMSF can have devastating effects on your retirement savings if you are not prepared. Dependency on one member to administrate the SMSF can destabilise the fund if they pass away.
Additional actions that can help include:
- Educating all members on the basic rules and strategies of your SMSF
- Employing an accessible financial advisor
- Allowing access to passwords and account numbers for all members
- Regularly reviewing your binding death benefit nominations
- Ensuring members have an effective estate plan
Whether you need to set up superannuation strategies, help setting up a SMSF, managing your SMSF or with the compliance and administration of your SMSF we can help. Contact a member of our specialist SMSF team today.