A Self-Managed Super Fund (SMSF) is the high performance car of the superannuation world. It can provide you with many benefits and opportunities but it also poses risks that need to be considered. So would you get into a sports car with no support team, training or prior experience with the expectation to win a race? The chance of success is low, whilst chance of having an accident is high!
A SMSF can be easily compared to a complex, high performance vehicle. To get the most out of it, you need to know how to drive it and have the right support crew to keep it at its peak performance. Unfortunately, many people take the approach of not having a support crew when it comes to managing their SMSF.
As in driving, making an error in judgement can result in fines or penalties. For a SMSF, an administrative penalty for breaching the superannuation rules can range from $900 for minor administrative matters through to $10,800 for more serious matters such as breaches of the rules about the fund’s investments. An example includes lending funds to a member of the fund or a relative. Any fines that are levied apply to all individuals who are fund trustees and must be paid from their personal funds/assets.
For trustees of the fund, in addition to the above administrative penalties, the penalty powers of the Australian Tax Office (ATO) include rectification or education orders, disqualifying the trustees, agreeing to an enforceable undertaking to require the trustees to correct an error, or in more serious cases treating the fund as non-complying.
Trustees of a SMSF need to have professional support team which is made up of a board of professional advisers. These professionals include your accountant, administrator, solicitor, auditor and financial adviser.
Understanding and applying the superannuation and taxation laws on a day to day basis to ensure your fund complies is essential. Having your professional support team (or board of advice) will allow you to successfully navigate through the key planning areas for the fund (such as benefit payments, investments into related parties, estate planning issues etc.).
As the trustee of the fund, it is your responsibility to ensure that the superannuation fund meets the rules at all times. You may rely on your accountant, financial advisor, auditor or other professional to help your fund comply with the rules. However, if one of these professional advisers identify a breach of the superannuation rules, then you should ensure, that it is corrected and the likelihood of it occurring in future is eliminated.
So what is next?
Ensuring that you get the best out of your SMSF is important. Having your board of professional advisers will ensure that you can operate your SMSF within the rules and achieve your long term dreams and goals – which for most is an enjoyable retirement on their terms.