What does the government intend to do about SMSF?
I am often asked how future legislation might affect SMSF decision-making today.
While I don’t know what this, or any subsequent, Government might do about SMSF, I can make some recommendations on how trustees can protect their SMSFs. As to anticipating legislative changes, based on what I read in the press, here are some considerations:
Yes, it is possible that at some stage there may be a tax on SMSF pensions, possibly only those in excess of say $100,000. Yes, it is possible at some stage the Government of the day may move to tax SMSF balances, maybe only those in excess of say $2 million. Yes, it is possible at some stage a Government may restrict geared property acquisitions in a SMSF.
This is not to say these things will happen. While some trustees are considering taking large sums out of their SMSF, this would seem premature. It would be prudent not to act until we know what will happen and get reassurances of Government intensions. To be fair, the current Treasurer has indicated there will be no adverse changes for SMSF at this stage.
What can trustees do? Those who follow my articles will know I advocate a SMSF be run in a careful conservative way.
Sole Purpose test At all times, bear in mind the SIS requirement for an SMSF to be operated for the sole purpose of the provision of superannuation benefits for the members. So your SMSF investments and other financial matters must demonstrate the sole purpose of the fund is the provision of superannuation benefits for members. This is the responsibility of the trustees.
Adopt a “clean pond” focus That is, be sure your SMSF has no strange investments and be sure to operate in such a fashion to avoid your auditor issuing Contravention Notices. If you are unsure of a proposed investment, call your SMSF Auditor... and preferably prior to the purchase.
Likewise, keep your accounting and investment records up to date and reconciled. Ensure there is a “permanent file” with signed Trust Deed, Pension documents and Minutes.
Use a Corporate Trustee In almost all situations, this is the recommended way to operate and provides greater protection than individual trustees.
Advise your clients to take care and avoid unnecessary risks If SMSF trustees operate in breach of the SIS rules and if this becomes a growing trend, eventually the whole industry will be “tainted”. There are always a few “bad apples”. I remind accountants to advise their clients to exercise care with the operations of their SMSFs, so any ATO review will not result in adverse findings. For you as an accounting firm, it's vital to keep your funds clean, so your firm is not unnecessarily targeted by the ATO.
Real Property If a fund purchases real property as an investment, ensure it is income earning and does not constitute a significant proportion of the fund assets, especially if the members are close to retirement age. Consider the appropriateness of finance on the property. (Look out for our subsequent article specifically on Real Property.)
Audit Ensure a proper audit of the fund by a qualified external auditor. Respond to any queries by the external auditor and carefully read the Audit Report.