As we enter 2018 let’s look at the top 9 issues we find with SMSF.
Investment strategy not up to date
We come across this a lot with new funds that we administer. Investment strategies need to be updated annually and need to reflect the investment choices in the SMSF. SMSF’s need to ensure that their investment strategy that is not out of date. What happens if it isn’t consistent with the current investments? It is held is a breach, to be dealt with under the SIS act.
Binding death nominations that are not consistent with the trust deed
With so many changes having come into effect from July 2017 SMSF’s needed to update their trust deed. There has been a side issue of determining whether binding death nominations are still current. Your binding death nomination needs to be reviewed by your solicitor so that it is: (a) consistent to the new deed & (b) reflects your overall estate plans, that is, it is consistent with your will and the enduring power of attorney as part of a larger estate plan. Often BDNs do not reference the required section of the trust deed or have other important information missing. As an enforceable legal document, this needs to be perfect. Talk to your adviser and solicitor if you have not already.
Time in the country
To satisfy your trustee obligations, you need to be of sound mind and an Australian resident for tax purposes. If you do not satisfy either of these requirements you may technically not be able to be a trustee. Therefore the SMSF would be in breach. Talk to your adviser if you believe that there are any residency issues that may affect you.
Choosing the assets that fit the risk profile
Your SMSF should carry assets that fit your risk profile. If a retiring 65-year-old has a life expectancy of say 17 years, that’s a long time to be holding conservative assets. If we assume a market cycle is between 7-10 years you will experience between 2-3 market cycles. This means you should make adequate provision for these cycles during your lifetime.
Consider the cost of an SMSF
It is generally accepted that around $250,000 is a good starting point for an SMSF. This is on the assumption that it is increasing in value. Reducing funds may be better served in the retail environment. If your balance is going down you should really consider whether a retail super fund might be easier to administer and cheaper overall.
Claiming a tax deduction for superannuation contributions
In 2018, employees can now claim a tax deduction for contributions to super, however, it is critical that the appropriate documentation is prepared and lodged in the correct order. Before members can claim a tax deduction for a superannuation contribution, they must prepare a “notice of intent to claim a tax deduction” and send this to the SMSF trustee AND the SMSF trustee must then provide them with an acknowledgement that the fund has accepted their instruction and withheld the necessary tax. It’s only upon receipt of this confirmation that the member can claim the tax deduction and lodge their return. If members have contributed to a fund and wish to convert this to a pension or rollover benefits to another fund, they must lodge the “notice of intent” form prior to taking these actions.
Keeping good documentation
SMSF Trustees are required to keep records of their minutes and records of trustee’s meetings, trustee declarations and member or beneficiary reports (including pension setup documents) for 10 years. All accounting records and financial reports have been kept for 5 years. Whilst it may be frustrating to lose cupboard space at home for these documents, SMSF Trustees must remember that not only is it a requirement to keep these records but they can be of benefit should the Trustees’ advisers wish to look back and confirm historical information. In the day of digital archiving, this is an easy one to comply with.
Getting specialist advice
The SMSF landscape is ever changing and it’s therefore important that SMSF Trustees are supported by specialist advisers who are willing to engage with their clients to keep them abreast of the compliance landscape and how the various SMSF rules affect their fund.
Investments not in the correct name
SMSF assets are required to be clearly recorded as such i.e. Trustee Name/s as trustee for SMSF Name. SMSF assets should not be mixed with private assets of the Trustees. Where this could commonly arise is if the SMSF Trustees wish to participate in a public stock market float and complete a single application form using their own and SMSF monies.