Top 10 Biggest Mistakes Made By SMSF’s.

1. Drawing on SMSFs During Financial Hardship

Superannuation law sets out strict restrictions on providing financial assistance to members or their relatives. Lending money or giving direct assistance from the fund to its members is strictly prohibited and may lead to serious compliance breaches. SMSFs must also comply with the 5% cap on in-house assets, which includes any investment in a related party business. Key takeaway: SMSFs are not a personal emergency fund. Any breach may result in significant penalties and possible disqualification of trustees.

2. No Contingency for Illness or Death of a Member

Many SMSFs rely on a single dominant member to manage the fund. If that member becomes incapacitated or passes away, the remaining members may lack the necessary knowledge or legal authority to manage the fund properly. Best practice: Appoint alternate trustees or involve family members, such as adult children, early, ensuring continuity and legal compliance.

3. Inadequate Insurance Cover

When transferring from an industry or retail super fund, many members forget to replace the default insurance cover they previously held. SMSFs do not automatically provide life, total permanent disability (TPD) or income protection cover. Solution: Arrange appropriate insurance policies as part of your SMSF setup or rollover process to protect your retirement strategy.

4. Exceeding Contribution Caps

SMSF members frequently exceed concessional and non-concessional contribution limits, which may result in excess tax and penalties. As of the current laws: Concessional Contributions Cap: $27,500 per year Non-Concessional Contributions Cap: $110,000 per year (or up to $330,000 over three years using the bring-forward rule) Having multiple employers can easily result in exceeding caps, particularly for concessional (pre-tax) contributions.

5. Late Lodgement of Annual Returns

The ATO expects timely lodgement of SMSF annual returns. Failure to lodge on time can result in administrative penalties, up to $5,500 for individuals and $27,500 for corporate trustees. Tip: Partner with a knowledgeable SMSF accountant or administrator to stay on top of deadlines and compliance obligations.

6. Assets Not Held in the Name of the Trustee

SMSF assets must be clearly held in the name of the trustee in their capacity as trustee. For example: Correct: XYZ Pty Ltd as Trustee for the Smith Family Super Fund Incorrect: John Smith or XYZ Pty Ltd Failure to do so can compromise legal ownership and breach SIS regulations.

7. Not Using Market Valuation for Assets

All SMSF assets must be reported at current market value in annual financial reports. Incorrect valuations can distort member balances and lead to compliance issues, especially when transitioning to pension phase or upon fund wind-up.

8. Breaching Trust Deed Rules

Every SMSF must act according to its trust deed. Making investments or decisions not permitted under the trust deed can invalidate transactions and lead to penalties. Advice: Review your trust deed regularly and ensure it’s updated to reflect the latest superannuation legislation.

9. Unauthorised Borrowing

SMSFs are only permitted to borrow under strict limited recourse borrowing arrangements (LRBAs). The borrowing must relate to the acquisition of a single asset, and the fund must have had the capacity to purchase the asset outright if not for the loan. Non-compliant loans can result in the asset being deemed an in-house asset or, worse, a regulatory contravention.

10. Incomplete Audit Documentation

Trustees must provide auditors with requested documents within 14 days. Delays or non-compliance can lead to audit disclaimers and ATO scrutiny.

11. Not Documenting Trustee Changes Properly

When trustees change, written consent must be provided by the incoming trustee and recorded with the ATO. This is separate from the ATO Trustee Declaration and is required to ensure the SMSF remains compliant under the SIS Act.

12. Incorrect ECPI Calculations and Missing Actuarial Certificates

If your fund has both pension and accumulation accounts, you may need an actuarial certificate to determine the portion of income that is tax-exempt. Many funds incorrectly claim deductions without supporting actuarial documentation.

Conclusion

Managing an SMSF comes with control, but also serious legal and financial responsibilities. Avoiding these common mistakes not only protects the fund but also preserves your retirement savings and compliance status.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.