SMSFs are private funds which allow individuals to control the strategy for their retirement savings and returns.
The Australian Taxation Office (ATO) is responsible for regulating SMSFs to ensure compliance with Australia’s taxation laws and the Superannuation Industry (Supervision) Act and Regulations (SIS).
The trustee/s of the SMSF are responsible to make sure the SMSF complies with the law and make decisions which have to be in the best financial interest of all the members of the SMSF.
A trustee can be an individual or a company.
The ATO states that trustees must meet the following obligations under the SIS:
- Exercise honesty, care, skill and diligence
- Meet the sole purpose test
- Accept contributions and rollovers
- Arrange the yearly audit
- Develop and review your SMSF investment strategy
- Lodge the SMSF annual return
- Keep accurate records
- Meet the residency rules
- Notify any changes to the SMSF
- Pay benefits
- Prepare SMSF financial statements
- Pay yearly fees
- Value SMSF assets
Each of these obligations are very important, but I think it is worth mentioning two in particular which highlight the stringent obligations that are enforced.
Exercise honesty, care, skill, and diligence
The trustee must ensure the SMSF complies with:
- the trust deed
- the SIS rules and:
- act honestly in all matters concerning the fund
- act in the best financial interest of all members
- not hinder any trustee from performing or exercising functions or powers
- not access or allow others to access benefits early
- retain control over your fund.
Comply with the sole purpose test
Put simply you must ensure the sole purpose of the SMSF is to provide retirement benefits to its members and in the case of the death of a member the benefits that have to be paid to the estate.
To be eligible for the tax concessions available to SMSFs it must meet the sole purpose test.
It can be unlawful to:
- access funds early
- be paid for conducting your duties or services as a trustee
- invest in a related business
- use the SMSF’s assets for personal use.
One of the most common examples we see here is where an SMSF invests in a rental property and allows a related party to live in that property.
How does the ATO deal with non-compliance of the laws governing SMSFs
The ATO emphasise that their focus is to encourage trustees to understand their legal obligations.
The ATO has a range of tools which can be accessed on their website here.
The auditor of the SMSF will often report breaches to the ATO and to the trustee.
When a contravention is reported it is important that you act as soon as possible to rectify it.
The ATO has an online mechanism to notify it of any unresolved issues which should be attended to as soon as practicable.
When considering what action to take the ATO will consider if it was intentional, the time to inform them and the efforts made to rectify the contravention.
The options open to the ATO include:
- Administrative penalties
- Civil and criminal penalties
- Directions to rectify
- Disqualification of a trustee
- Enforceable undertakings
- Freezing of SMSF assets
- Imposing income tax assessment
- Notice of non-compliance
How can FC Lawyers assist you?
At FC lawyers we have assisted numerous trustees to ensure their SMSFs are compliant, their deeds and relevant documentation and in order and negotiating with the ATO in relation to any possible enforcement or rectification action.
Contact our team to discuss your legal needs.
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