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ATO & Trustee Responsibilities |
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Trustees will discover a little knowledge can be a dangerous thing when they complete a new tax office questionnaire.
Until recently, SMSF compliance with superannuation laws was generally woeful and the Australian Tax Office did not have the resources to adequately address the problems.
Yet if it wants to, the tax office can make the life of any SMSF trustee miserable if they flagrantly break the rules, especially as the ATO now has an explicit monetary allocation to more effectively supervise the sector.
Sensible SMSF trustees should think carefully about their disdain for the super laws because they will realise that continuing problems with the sector will lead to increased and less flexible regulation. Sensible SMSF trustees will want to operate their super fund within the boundaries that the ATO sets.
The ATO has produced a range of excellent guides. But trustees should be careful as these documents are starting points and not a substitute for definite knowledge.
Another source that tells trustees areas the ATO is focusing on is the questionnaire the ATO gives to trustees of new SMSFs. On the covering the ATO says "as we are assessing your knowledge as trustee of the fund, the questionnaire must be completed by you and not your accountant, tax agent or adviser". The questionnaire delves into the operations of a SMSF. The ATO provides no guarantees that there will be follow up activities if they find information they don't like. So what are some of the key areas SMSFs should be thinking about as part of their planning for the year?
- Is your membership and trusteeship correctly aligned? In general, all members of the SMSF must also be trustees and no one else should be involved. There are special rules for children under 18, bankrupts and the mentally incapacitated.
- What is the sole purpose test? Can you briefly explain what the legal requirement is that specifies the only reason your super fund can exist? Principally, fund assets cannot be used by members or their relatives. Another question asks the trustees if any fund assets are being used personally or privately. You might have a problem if you can explain the sole purpose test but members are using fund assets.
- Specific data about your SMSF's assets such as where it has invested its assets, contributions paid, amount transferred into the fund from other super funds, what assets have been sold or transferred into the super fund by its members and how that asset was valued. The ATO is aware that some SMSFs do not provide accurate data on their annual returns. Collecting data via this survey will help the ATO quickly identify if mistakes have been made or inappropriate activities have occurred, such as illegally using super fund assets incorrectly.
- Has the fund developed an investment strategy? This is a legislative requirement. If the trustee says "no", the ATO has a reason to look more closely at a fund. If the trustee says "yes", then the trustee is asked to briefly explain what that investment strategy is. As the ATO will also know specifically what the trustee has invested in, they will have a better idea if the trustee has actually followed the investment strategy.
- Can the fund borrow money and if yes when can this take place? Super funds can only borrow money in limited circumstances but some funds have ignored this prohibition.
The ATO is obviously keen to make sure that new trustees don't fall into the same trap. Whilst we have alerted our clients of this onerous questionnaire, please note, we recommend you contact Advantage One to assist you in completing.
- Can a trustee lend money or give financial assistance to fund members or their relatives? The answer is no, but clearly if a member says yes, the ATO might want to take follow up action.
- A range of basic administrative issues are examined, such as, are all the fund's assets held in the name of the fund (in no, why not?) and does the fund have a separate bank account?
Traditionally, SMSF trustees have been able to hide behind their ignorance when the ATO has identified problems.
However, any trustee who completes this survey will not be able to argue that they are unaware of their obligations.
Once the ATO has a good data sample, it has said it will use the data to improve the documents they make available to trustees.
The ATO has also said it will release collated data, which will no doubt make interesting reading.
Don Blackwell - Director, Advantage One
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+ 61 8 8333 1944
