Now that the Christmas and New Year holidays are over, it’s time to do some spring cleaning with your SMSF.
Here are some key issues you should consider:
1. Fund trustees: what is your fund’s disaster recovery plan?
How well would your fund be run if any of the fund trustees were to die or become mentally or physically incapable of acting as a trustee? Can the fund continue to function, or will there be operational and legal problems?
For example, if your fund has individual trustees and one member dies, the deceased’s executor will temporarily become owner, or part-owner, of the fund’s assets. If there are problems in running the deceased estate, then this can flow through to create hassles for you and your super fund.
Taking another example, problems can also arise in the event one trustee suffers from mental or physical ill health and a court decides they can’t act for themselves. A good way to solve this is to have enduring powers of attorney in place.
2. Corporate trustees: do you have a corporate trustee and its sole function is to act as trustee of your super fund?
If yes, then have you told ASIC so that your annual supervisory fee is reduced? Also, have you considered paying this fee 10 years in advance so you receive an additional discount? Click here for further details. With this mechanism, you also save yourself the hassle of sending money to ASIC each year for a decade.
3. Fund tax and regulatory return: most SMSFs rely on accountants and tax agents to submit their regulatory return.
For funds that weren’t created in the 2015 financial year, the whole process, including audited financial accounts and compliance audit, must be submitted to the ATO by 15 May 2016. Are you on track to meet this deadline? For funds created in the 2014/15 financial year, your fund’s first return was due last December. If you didn’t meet this date, then it’s best to take corrective action now.
4. Investments: here are several issues you might like to consider:
a. Has your fund loaned money to you or other members of your super fund or any of your relatives?
b. Has your fund loaned money to your business, even for a short time?
c. Has your fund leased any of its assets to you or your relatives or to any business you own or your relatives own?
d. Does your fund own residential real estate and it’s rented to you or your relatives?
e. Does your fund own any real estate that is leased to any entity, even your business, and rent is outstanding? What recovery steps have you taken, if any?
f. Does your fund own any collectibles (art work, old coins or bank notes etc.) that are still at your home?
If you answered yes to any of the above, then your fund has likely breached some of the super laws. It’s better to begin taking corrective action now, rather than have your fund’s auditor, or even the ATO, find it for themselves.
5. Investments: I don’t need to tell you that the share market has been rocky lately. Does your fund have any assets that it purchased for more than their current market value? If yes, and you still like the investment, then now might be a good time to recycle the investment and buy it back for a lower cost base. Keep in mind the ATO’s wash sale penalty rules, which can examine assets sold for a capital loss and the same/similar purchased not long after.
6. Investments: does your fund have a Limited Recourse Borrowing Arrangement (LRBA)? If yes, then has it been set up correctly? Is the loan in the super fund’s name? Is the asset in the name of your bare/holding trustee? Is income from the asset and expenses being paid from your fund? Consider having the arrangement independently verified.
7. Fund expenses: does your fund have any expenses that can be paid this year e.g., repairs and maintenance on real estate? Remember that the pre-payment rule that applies to your own personal affairs isn’t available to super funds.
8. Pensions: are you on track to pay at least the minimum this year, based on your age and account balance at 1 July 2015? If not, then you still have time to sort this issue out. Remember that special rules apply to the minimum income requirement, if you commenced a pension this financial year. If you’re aged under 60, is the correct amount of PAYG tax being withheld from pension payments and remitted to the ATO?
9. Other benefit payments: have these been structured properly and all relevant paper work completed?
10. Death benefits: how will your benefits be paid if you were to die? Will your super fund ground to a halt while challenges are dealt with? Who are your dependants under your trust deed, the super laws and tax laws?
11. Contributions: there are three parts here:
a. Tax – don’t forget to maximise your contributions this year. Currently industry rumours suggest the Government will change how super in the accumulation stage is taxed. This might mean either further restrictions on the amount of contributions you can make or, overall, more tax for concessional contributions. My suggestion? Get in while the going is good.
b. If aged at least 65 but under 75, then satisfying work tests before contributions can be made is important. Make sure you understand these rules. It’s often better to seek advice.
c. Do you want to use the non-concessional contribution three year in advance rule? If yes, seek advice, as lots of people misunderstand how this rule works.
12. Other fund documentation: make sure you keep fund documentation, e.g. financial accounts, securely and safely and for as long as required.
13. Fraud, embezzlement and theft: these are becoming big problems in the financial sector, especially with the rise and rise of technology. Make sure you protect your financial data and access to your fund’s bank account. Arrange that all trustees must authorise all payments from your fund.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
