1. Drawing on Self Managed Super Funds during times of financial hardship
Superannuation Laws set out strict guidelines for SMSF’s lending or giving money to assist members and their families during times of financial hardship. There are also strict laws relating to ‘related party assets’ which includes business’ that are owned or operated by SMSF members. Superannuation Law dictates that only 5% of the fund’s assets may be related party assets.
2. Failure to plan for death/illness of a member
Often SMSF have one dominant member who controls the majority of investment decisions and looks after the management of the fund. In the instance where that member become ill or dies, the fund may not be managed so as to provide the best benefits to members. This may be due to other members not having sufficient knowledge relating to the fund’s investments or regarding SMSF’s in general. To avoid situations like these, it is often recommended that older SMSF members invite their children and to become members of the fund.
3. Failure to establish the appropriate insurance cover
Often members of SMSF who transfer their existing superannuation balances from retail or industry funds forget about their death and disability insurance. Most retail and industry funds have some level of insurance and many do not require members to undergo a health check. When setting up a SMSF it is important to set up an appropriate level of insurance.
4. Putting more money into the fund than superannuation law prescribes
The most common mistake of SMSF members is breaching the superannuation contribution caps. At present the Concessional contributions cap is $25,000, $50,000 for those aged 50 years and older, and the Non Concessional Contributions Cap is $150,000. N.b Concessional contributions include compulsory employer contributions (9%) and salary sacrificed amounts. Non Concessional Contributions include personal contributions made from the members after tax income. The Australian Taxation Office has noted that the most common reason for this is a member having two employers both making 9% contributions to the fund.
5. Late Lodgement
ATO statistics show that 9.1% of funds have not lodged their 2008-2009 superannuation tax returns. The penalties for this are severe and can reach $5,500 for individuals and $27,500 for companies.
4. Assets not in the name of the trustee
Any assets held in a SMSF cannot be under the name of members or in the name of the company in the case of a corporate trustee, in their own capacity. That is, they must be held under the member or company’s name specifically under their capacity as trustee of the fund ie ‘The Company Pty Ltd’ as trustee for The XXX Superannuation Fund.
5. Market Valuation of Assets
It is imperative for accurate reporting of the financial position of a fund, that assets are reported at their current market value. Many funds are incorrectly reporting the value of assets.
6. Breaching Rules set out in the trust deed
The trust deed dictates what the fund can and cannot do. Often members are making investment decisions that the trust deed does not allow for. It is important to check your trust deed before making any investment and financial decisions. Trust deeds also need to be updated to keep up with new superannuation legislation.
7. Unauthorised Borrowing
There are strict guidelines surrounding the borrowing of money by SMSF’s, this includes limited recourse on the loan and the fund being able to purchase an asset ordinarily without receiving a loan in the instance where the fund had the necessary funds to do so.
8. Failure to supply auditor with appropriate documentation
Any documents requested for verification and audit purposes must be supplied to the auditor of a fund within 14 days of a request being made.
9. Failure to document changes of trustee
The SIS Act specifies that a person is not eligible to become a trustee of a fund, or become a director of a corporate trustee unless the person has consented in writing. This consent is in addition to that which is required to be lodged with the ATO in the ‘ATO Trustee Declaration.’
10. Failure to obtain an actuarial certificate and incorrectly calculating exempt current pension income (ECPI)
An actuarial certificate may be required to determine how much of exempt income can be claimed as a deduction. Many funds are incorrectly claiming amounts as deductions that have not been calculated correctly and are not supported by an actuarial certificate.