Common Self Managed Superanauation Fund Administration Traps

1. Deed not current

The Deed sets out the rules and regulations by which trustees run their fund and needs to provide adequate flexibility and range that conforms to the full extent of the legislation.

With recent changes to superannuation legislation particularly taking effect from 1 July 2007, some Deeds may not allow the Fund to take advantage of new laws regarding benefit payments and instalment warrant borrowing.

Where a fund member is planning on making a major superannuation decision, the Deed should be reviewed to ensure trustees are allowed access to and consider all potential options.

2. No tracking of components

The preparation of accurate and complete member statements is as important an administration function as the preparation of financial statements such as the balance sheet and profit or loss.

With the recent legislative changes for 'simpler super' there are less components making up a member's superannuation balance. However losing track of these components during the accumulation phase could be the difference between paying little or no tax when benefits are paid, to potentially incurring tax twice on the same amount.

3. Investments held in the incorrect name

Superannuation fund assets must be held in the name of the trustees and is required under the legislative provisions. This ensures some asset protection in cases where a member may undergo bankruptcy or divorce and their personal assets are at risk.

Confirmation of the name investments are registered in should be sought when new investments are made or trustees are changed. Unnecessary brokerage charges may be incurred where names in which investments are changed.

4. No beneficiary election

Superannuation is treated as a separate asset to a person's Will. They may elect to pay their benefits to the estate or allow the Fund trustee to decide on the beneficiaries. A current and correct beneficiary election will help to ensure your superannuation benefits are received by the intended beneficiary and may also be most tax advantaged.

5. No understanding of trustee obligations

All new SMSF trustees are required by the Australian Tax Office (ATO) to sign a trustee declaration. This is an attempt to ensure trustees understand their roles and responsibilities in the management of an SMSF. Whilst greater flexibility is offered, greater compliance and administrative requirements are placed on trustees in order for the fund to remain compliant and receive the full tax concessions.

6. No investment strategy or has not been followed

As part of the sole purpose test, being to provide benefits to members upon retirement, an investment strategy is a requirement by the ATO and the planning is a crucial aspect in prudent management.

Having an investment strategy does not restrict a fund from making investments that it wants to make, but means that any changes in investments must be documented and the investment strategy updated where required.

Our SMSF Administration Packages can help ensure you do not fall into any of this potential traps. For more information, call us on 02 9923 2223