The 3 Rs of SMSFs: Responsibility, Related parties and Rules

ATO three Rs of SMSFs - Responsibility, Related- party transactions and rulesAccording to the ATO the three Rs for SMSFs are Responsibility, Related party transactions and Rules. This was the topic of a speech given by Stuart Forsyth, ATO Assistant Deputy Commissioner for Compliance, Strategy, Risk and Delivery, Superannuation to the Australian Investors Association Annual National Conference 2014.

Responsibility

SMSFs mean taking responsibility for your retirement savings. As Mr Forsyth said in the speech “SMSFs are far from ‘do-it-yourself’ or ‘set and forget”, instead they “require significant time, attention and expertise”.

Mr Forsyth asked that people remember the ATO isn’t a prudential regulator. Prudential regulation “governs the conduct of people and institutions in a position of trust over other peoples’ money”, instead SMSF trustees must be “vigilant in protecting their fund’s assets”.

Estate Planning

Mr Forsyth highlighted a number of things SMSF trustees need to consider as part of the responsibility of running an SMSF, the first was succession planning – including binding death benefit nominations, reversionary pensions and enduring powers of attorney.

The SMSF deed also needs to be checked, as it should “reflect the requirements of the fund and be tailored to meet the fund’s objectives and the members’ needs”.

Trustees were also encouraged to “consider the advantages of appointing a corporate trustee” as it would likely result in a “smoother succession”.

SMSF trustees were directed to the ATOs recently published video Planning for the unexpected for more information about estate planning issues.

New ATO powers

Of course, if SMSF trustees get their responsibilities wrong and breach the superannuation rules the ATO can take action. This action is likely to include some of the ATOs new powers – the administrative penalty, rectification direction and education direction. However, Mr Forsyth said “the worst possible thing you can do is to try not to engage with us. We will work with you to avoid the worst outcome where we can.”

Mr Forsyth also said “we make few funds non-complying and expect this will continue”, though “as long as trustees take care to rectify in a timely manner penalties are unlikely to be an issue”.

However penalties aren’t the only focus of the ATO, as the ATO is “also always looking to see how we can help to improve the competency of trustees”.

Related party transactions

Mr Forsyth used the speech to ask the question “related party transactions: are they worth the risk?”. He reminded SMSF trustees of the “prohibition against the acquisition of assets from related parties“, unless one of the exemptions applies. When considering in-specie contributions SMSF trustees need to be aware that:

the legal ownership of the asset changes from the individual contributing, to the fund. Therefore, you need to consider the stamp duty and capital gains tax consequences of such a transfer.

For in-house assets trustees were reminded of the 5% cap and that loans to members of SMSF are “specifically prohibited under separate provisions of the super laws”. The ATO will be publishing a YouTube video on in-house assets in October.

Rules

Some of the rules highlighted in the speech include:

  • SMSF residenc
  • illegal early release
  • exempt current pension income
  • missing the minimum pension payment
  • segregation of pension assets
  • 45 day rule for franking credits
  • claiming the CGT discount
  • apportionment of expenses

The full speech can be found on the ATO website.

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