February 4, 2022

How to avoid common mistakes made by SMSF Trustees

Self Managed Super Funds (SMSFs) are one of the fastest growing structures in Australia, but they’re also one of the most complicated. SMSF trustees need to know all about investments and how to protect their SMSF. They also need to be aware that SMSFs have strict rules around who can contribute or withdraw funds.

Trustees who overlook important details or fail to fulfil their responsibilities will find themselves reported to the ATO and may risk incurring financial, civil or criminal penalties. In this article we will help you avoid common mistakes made by SMSF Trustees so you can maximise your super and ensure your SMSF is protected.

Breaching the sole purpose test

SMSFs must be maintained for the purpose of providing retirement benefits to members. If a member gets any financial benefit through an investment, aside from increasing the return to the fund, the SMSF will fail the sole purpose test.

For example, if a person uses a holiday house that they bought with the help of the fund for their personal use and they don’t repay the rental costs, they will have breached the sole purpose test. The rules can be complicated, which is why it is a good idea to get professional advice.

If a trustee breaches the sole purpose test, they will lose the concessional tax treatment of their fund and they may be liable for civil and criminal penalties.

Financial assistance and member loans

It is important for trustees to follow the super laws when accessing their SMSF funds. This means that they cannot access the SMSF bank account to give financial assistance or loans to members or member’s’ relatives to improve 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 by keeping your bank accounts separate to ensure no premature withdrawals are made from your SMSF account.

Failing to lodge paperwork on time

SMSF trustees must comply with strict reporting and recordkeeping requirements. Your SMSF will have an annual audit. If you don’t provide certain documents or meet the submission deadline, your SMSF will be reported to the ATO.

You need to keep accurate records of all your decisions and transactions for if the ATO decides to look into your SMSF. A financial advisor can help take the stress out of this process and make sure you stay organised and on top of paperwork.

Not planning for the death of another member

It is very important to be prepared for the death or illness of a member of your SMSF. This can be devastating to your retirement savings if you are not ready. Make sure that everyone who is involved in the fund knows what their responsibilities are and how the fund works. Distributing responsibilities will help keep things running smoothly if something happens to one of the members.

There are other precautions you can take in addition to life insurance policies, including:

  • Make sure that everyone who is a part of your SMSF knows the basic rules and strategies.
  • Employ a financial advisor who can answer any questions you have about the SMSF and who can help you stay compliant.
  • Give all members access to passwords and account numbers.
  • Review your binding death benefit nominations regularly.
  • Be aware of the processes and responsibilities of the trustees of your SMSF.

In conclusion

SMSF trustees need to be aware of the many responsibilities they have in order to maintain their SMSF and avoid penalties. By being proactive and organised, SMSF trustees can rest assured that their retirement savings are protected.

At Seriously Good Accounting we can provide you with advice and guidance to make sure your SMSF is compliant and protected, contact us today for a free consultation.

Filed Under: Compliance

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