There is no doubt the SMSF environment is changing rapidly. Daily – I see new SMSF trends in collaboration, integration, data validation, valuations, data automation and unusual investments. These changes are referred to as “disruptors”, and can challenge many SMSF professionals and trustees. Viewed properly – these disruptors offer new opportunities to those willing to embrace them.
Although we commonly hear about “technological advances”, disruption can take many other forms. A prominent one is the constant undermining of SMSFs by certain sections in society and competitors in the superannuation space. Many SMSF professionals and trustees are now questioning whether current or future governments will clamp down on the benefits offered by SMSFs. Commonly raised concerns are:
- Increased taxation of SMSF pensions;
- Taxation of SMSF balances over a certain threshold; and
- Restrictions on gearing
I am not suggesting that these changes will happen, but it is a genuine worry affecting confidence in the SMSF space
Some SMSF trustees are considering whether they should take large sums out from funds. Others are questioning whether SMSFs continue to be an optimum investment vehicle for retirement. All this would seem premature until we know what is going to happen and get reassurances of Government intensions. To be fair, the federal government has indicated there will be no adverse changes for SMSF at this stage.
In my view – the sleeping disruptor is the small number of badly behaved SMSF advisers and trustees who could blacken the name of the whole SMSF sector. Such operators and trustees fuel the fire of those wishing to break the back of the SMSF sector. The effects of this could be devastating to a very substantial SMSF industry.
To be here for the long term – SMSFs must maintain their “Social Licence” to operate. That is SMSF professionals and trustees must abide by the governing framework and not abuse the generous concessions provided to SMSFs. By doing this, many Australians will achieve superior retirement benefit from SMSFs and maintain public confidence for many years to come.
What can trustees do?
- Adhere to the Sole Purpose test
At all times, bear in mind the SIS requirement for an SMSF to be operated for the sole purpose of the provision of retirements benefits for the members and or death benefits for dependents. SMSF investments must always be made with these objectives in mind. This is a fundamental responsibility of the trustees.
- Adopt a “clean pond” focus
That is, be sure your SMSF does no strange investments and be sure to operate in such a fashion to avoid your auditor issuing Contravention Notices. If you are unsure of of a proposed investment, contact your SMSF Auditor, if possible before such transactions occur.
- Use a Corporate Trustee
In almost all situations, this is the recommended way to operate and provides greater protection than individual trustees.
- Advise your clients to take care and avoid unnecessary risks
If trustees operate SMSF in such a fashion that they break the SIS compliance rules and if many trustees do this, eventually the whole industry will be “tainted”. There are always a few “bad apples”. I remind accountants to advise their clients to exercise care with the operations of their SMSF, so any ATO review will not result in adverse findings. For the accounting firm, keep your funds clean, so your firm is not unnecessarily targeted by the ATO.
- Real Property
If a fund purchases real property as in investment – ensure it is income earning and does not constitute a significant proportion of the fund assets. Real estate can cause a liquidity problem, especially if the members are close to retirement age and need to access pensions.
Ensure a proper audit of the fund by a qualified external auditor. Respond to any queries by the external auditor and carefully read the Audit Report.
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