I’ve seen a lot of trustees over my time and it constantly amazes me the lack of attention to regulatory responsibility that trustees, and in many cases their adviser (whether accountant or financial planner) show their SMSF. With SMSFs now the biggest segment within the superannuation sector, there is a greater level of scrutiny being applied to the industry across trustee responsibilities and also the adviser, accountant and auditor levels. With several government reviews in place (e.g. Cooper review), plus regulatory review programs such as the ATO “audit the auditor” and the newly introduced tax agent reviews for accountants preparing SMSF returns, it is critical for funds to be absolutely compliant in every aspect.
The ATO has spent considerable time in ‘education’ phase but more and more in recent times has it moved to enforcement for those abusing the privilege of running an SMSF. A recent AAT court decision making an SMSF non-complying certainly adds substance to their stance.
So, whilst many people think that they might be tracking along nicely with their SMSF, do you really know whether your fund is fully compliant? When was the last time you put it to the ‘acid test’?
I have created the ‘20-step SMSF Health Check’ to see whether your SMSF is not only compliant but can maximise a variety of strategies now available to self managed super funds since the introduction of Simpler Super.
Test your fund below:
20 step SMSF Health Check
- Does your fund structure currently meet the definition of an SMSF?
- Are any individuals disqualified from being able to act as a trustee/director?
- Does the fund meet the definition of an Australian Superannuation Fund (i.e. meets the three tests to be considered a complying fund)?
- Does your SMSF have a documented investment strategy? Does it consider matters such as overall fund objectives, cash flow, risk, diversification, liquidity and its ability to discharge existing and future liabilities?
- Is the fund’s strategy reviewed at least annually? and
- are changes documented accordingly?
- Are all investments correctly held in the name of the SMSF (or trustee as trustee for the SMSF)?
- Does you trust deed provide any limitations on how you can invest within the SMSF?
- Can the fund accept contributions:
- For members up to age 75?
- As an in-specie transfer (e.g. off market transfer of shares)?
- From a government agency? i.e. government co-contribution from ATO
- Does the trust deed allow for the fund to borrow money in accordance with the new gearing in superannuation rules?
- Does the fund allow for benefits to be retained within super? i.e. no requirement to draw a lump sum or pension at any age (no compulsory cashing).
- What type of pensions do your fund’s governing rules allow to be paid? Are these in accordance with the Simpler Super rules (i.e. account based pension)?
- Does the trust deed allow for the payment of a transition to retirement income stream?
- Can the fund pay out lump sum amounts as an in-specie transfer?
- Do the fund’s governing rules allow for payments to be made to members with terminal illness?
- Do the members currently have a valid death benefit nomination?
- Does the trust deed allow for binding and non-binding death benefit nominations?
- If binding is allowed, how often does the nomination need to be reviewed and renewed?
- Does the trust deed allow for the creation and operation of reserves?
- Do you know the current tax-free component or tax-free proportion of your superannuation interest? (i.e. is it listed on your member statement)?
- Do you know the current preservation status of your benefits?
- Are all administrative records being prepared and kept up-to-date regarding activities of the fund? Are financial records being maintained for at least 5 years and non-financial records for at least 10 years?
- Have you appropriately considered insurance (income protection, life & TPD, trauma) as part of your existing superannuation benefits?
So how did you go? If you’ve fallen short on any of these matters above, you’ve potentially got either a compliance issue or you aren’t maximising the fund to its fullest capacity. It may mean that it’s time for an SMSF Health Check.