5 Common Mistakes SMSF Trustees Make
Superannuation is the main source of retirement income for most Australians, so how it’s managed matters. The system can feel complicated, but it really comes down to three steps: contributing, investing, and eventually drawing it down in retirement. Steps one and three are largely mechanical. It’s the investing step that determines how much you’ll actually have to retire on.
Most people leave that to a public superannuation fund. Once a balance is large enough to justify the extra cost and responsibility, some people instead set up a Self-Managed Super Fund (SMSF) to manage the investing themselves. As more SMSFs have been established, ASIC has correspondingly increased its scrutiny of the sector. Here are five mistakes we regularly see.
1. Treating the SMSF’s money as personal money
This is the single most common issue: a fund member withdraws money for personal or business use without realising the seriousness of what they’ve done.
Keeping the fund’s bank account genuinely separate from everyday personal finances is essential. Withdrawing money informally can trigger additional tax on the fund and its members, and in more serious cases, penalties.
2. Investing in the fund’s name incorrectly
Investments held by an SMSF must be clearly held in the fund’s name, separate from personal investments. Correctly titled, fund assets are generally well protected, including in the event that an individual member becomes personally bankrupt.
3. Breaching the fund’s investment restrictions
SMSFs can invest broadly: term deposits, shares, property, cash. But there are specific restrictions, particularly around dealing with “related parties” (people or entities closely connected to fund members). Lending to, or investing with, a related party outside the rules can result in penalties and the loss of the fund’s tax concessions.
4. Missing minimum pension payments
Once one or more members move into pension phase, a minimum amount must be drawn from the fund each year. Missing this can have unwanted tax consequences for the fund.
5. Poor record-keeping
Like any structure, an SMSF needs its paperwork kept properly, including the trust deed, minutes of meetings and decisions, the fund’s investment strategy, and each year’s tax return and audit report. Some records must be kept for at least five years, others for at least ten:
- Five years: financial reports containing the fund’s details; tax returns lodged with the ATO.
- Ten years: minutes of meetings where decisions affecting the fund were made; records of any change in fund membership.
These are the five most common issues we see, but running an SMSF day to day throws up plenty of situation-specific questions along the way. Get in touch and we’ll help you work through them.
