Self Managed Superannuation Funds - Common Mistakes

Last updated June 2011

The Taxation Office has identified a number of areas where mistakes occur. As breaches can have serious ramifications for the fund, prevention is better than cure. Some common mistakes are:

• Investment strategy – Some trustees did not have a strategy, others did not follow the strategy, or review the strategy on an annual basis.
• Expenses must be paid by the Fund – If not, they will be regarded as a contribution.
• Assets must be in the Trustee’s name – Specifically required under the SIS Act, otherwise fund’s assets may be lost should they be held in the name of another entity and that entity becomes bankrupt or goes into liquidation.
• Minutes of meetings – Some funds did not have minutes of all meetings, including investment decisions and agreement of the fund’s investment strategy. (minutes must be retained for 10 years and the auditor must sign off that these have been kept in the audit report).
• Separate bank accounts – A fund must have a separate bank account. Operating a bank account in combination with another entity or individual could result in breaches of the SIS Act.
• Gainfully employed – Once they turn 65, a member must be gainfully employed in order to have contributions made on their behalf.
• Withdrawal and recontribution strategies – The ATO has said that these may be caught under Part IVA where the dominant purpose of the transactions is to gain a tax benefit.
• Actuarial certificates – Needed in certain circumstances, these must be obtained prior to lodging the fund’s tax return. If not, a fund is not allowed a tax deduction for income earned on assets supporting a pension.
• Tax and regulatory returns – Must be lodged even when the fund is inactive in its first year.
• Collectibles and art – Funds holding these assets breach the SIS Act if they do not comply with rules that in place specifically for them. Automatic penalties apply.
• Residential property cannot be leased to a related party – This includes a rental or holiday home used by any member for any period of time in the year (even one day). It doesn't matter if rent is paid at commercial rates or a commercial lease is in place.
• Business real property is only land and buildings – The rules that apply for business real property only apply to a narrow range of assets. For example, Taxi plates are not regarded as business real property and some demountable buildings are not considered land and buildings.
• Investments must all be made at arm’s length terms – This includes shares and the acquisition of units in a closely held unit trust.