The Tax Office is your friend
In 2006-07, over 42,000 new self managed superannuation funds (SMSFs) were established and the attractiveness of the new superannuation rules means similar growth will continue for some time yet.
If you are planning on setting up a SMSF, the Australian Tax Office (ATO) wants to help you get it right. The ATO is the regulator of SMSFs and believes if you get it right to start with there is a lower chance of things going wrong in the future.
There are now over 320,000 SMSFs holding about $250 billion in retirement assets. The ATO has put on over 250 extra staff to help educate SMSF trustees and ensure they comply with the superannuation rules.
If you set up a new fund or become a trustee of an existing SMSF, you must sign a trustee declaration confirming you understand the responsibilities and requirements of being a trustee. You are responsible for ensuring the fund complies with superannuation law although you may seek professional advice to keep yourself on the straight and narrow.
One requirement on trustees is to lodge an audited annual return setting out the financial position of the fund and that it has complied (or not) with the superannuation law. The ATO will be paying particular attention to the first returns lodged by new SMSFs.
Non complying SMSF’s
The ATO has made it clear that it believes most trustees and their advisers want to ‘do the right thing’. It wants to work with them to help them comply. Unfortunately, some trustees set up or operate self managed super funds improperly and the ATO has an arsenal of weapons to punish them if they do not comply. These include administrative penalties, enforceable undertakings, disqualification as a trustee, fines and jail.
Financially the worst penalty is for the fund to lose its complying status meaning it is taxed at 45% instead of 15%. If you had $500,000 in a SMSF and it was made non-complying the tax bill would be $225,000! In 2006-07, 24 funds suffered this fate because of serious or persistent breaches of the law.
The ATO has expressed a desire to work in partnership with SMSF trustees and advisers and it would make sense to stay friends with the regulator.
