While taking control of your super is becoming increasingly popular, managing your own SMSF comes with increased responsibility and obligations. Some of the main considerations to determine whether an SMSF is right for you have been outlined below.
Non-Compliance of a Self-Managed Superannuation Fund
There are strict penalties levied by the Australian Tax Office if an SMSF is found to have breached the governing rules. These penalties include fines and jail terms for the trustees and loss of up to 45% of the superannuation fund assets as a taxation penalty. Therefore, it is very important that if you do not understand your responsibilities as trustees or believe that your fund may have broken the rules, that you seek professional advice as soon as possible to address the situation and act efficiently to rectify any problem.
Compensation Arrangements for SMSF’s
SMSF’s are not eligible to receive compensation under Part 23 of the Superannuation Industry (Supervision) Act 1993. This is because SMSF’s are subject to supervision by the Australian Taxation Office and not the Australian Prudential Regulation Authority (APRA). Part 23 of the SIS Act provides that the trustee of an APRA-regulated superannuation fund, or approved deposit fund, may apply to the Minister for financial assistance if the fund suffers loss because of fraudulent conduct or theft, and the loss has resulted in a substantial reduction of the fund which makes it difficult for the fund to pay its members’ benefits: See s229 of the SIS Act. Any financial assistance paid under Part 23 of the SIS Act is funded through a levy imposed on APRA-regulated superannuation funds and approved deposit funds by the Superannuation (Financial Assistance Funding) Levy Act 1993.
Access to Complaint Mechanisms
The Superannuation Complaints Tribunal deals with complaints relating to decisions and conduct of trustees, insurers, and other decision-makers in relation to regulated superannuation funds, approved deposit funds, annuities, life policy funds and retirement savings accounts. The Tribunal does not, however, have an unlimited jurisdiction to deal with all superannuation-related matters. The Tribunal cannot deal with complaints in relation to a self-managed superannuation fund. If you require to resolve a dispute then you may need to take legal action to do so, which may be a very costly and time-consuming activity.
SMSF Regulatory Environment
Knowing what your legal and regulatory obligations are as an SMSF trustee is very important. The principal legislation regulating SMSFs is the Superannuation Industry (Supervision) Act 1993 and associated regulations (“the SIS Act” and “the Superannuation Regulations”). The SIS Act and SIS Regulations require that the trustees of an SMSF must ensure that its sole purpose is to provide benefits to members (or, in some circumstances, their dependants) on events such as retirement, and death.
The SIS Act and Superannuation Regulations also set out several “covenants” which individuals are considered to have made when they agree to act as trustees of an SMSF. Those covenants include:
- to act honestly in all matters
- to exercise the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with the property of another for whom the person felt morally bound to provide.
- to act in the best interests of members and their beneficiaries
- to keep the SMSF’s money and assets separate from their own (or those of any employer contributing to the SMSF)
- not to enter into any contract or do anything which would hinder them from properly carrying out their trustee functions.
- to formulate and give effect to an appropriate investment strategy.
- to formulate and give effect to an appropriate strategy for the management of the SMSF’s reserves (if applicable), and
- to allow members and other beneficiaries access to any information prescribed under the SIS Act and Regulations.
Even if you use professional advisers to help with the management of your SMSF, or if you rely on the other trustees of your SMSF to make decisions, you as a trustee are liable for any breaches of the SIS Act or Superannuation Regulations. In the event of a breach, as a trustee you are liable and will be held accountable for each and every decision of the SMSF by the ATO.
Contact us and speak to one of the team today – they would be delighted to answer any questions you may have.