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Smart Investing
ATO toughens up on SMSFs
 November 5, 2007
Robin Bowerman
Self-managed super funds are becoming so popular it seems only a matter of time before someone writes a love song in tribute to the flexibility and control their personal super fund gives them over their life, their relationships and their death.
In the last financial year just over 41,000 self-managed super funds were set up – almost 20,000 of them in the hectic rush up to June 30 when the super contribution rules changed.
But perhaps a new reality TV show – My Super Idol – would be better because then you could see all the issues of running your own super fund laid bare. The advantages of setting up a self-managed super fund are promoted strongly – investment flexibility, control and potential cost savings are common things listed in favor of taking the plunge into your own super fund.
Done properly with enough assets and the right investment approach they are all valid reasons. But rarely – if ever – do people say that one of the reasons they set up a self-managed super fund is because they wanted to be a fund trustee.
But trustee legal obligations come wrapped up with the fund and as a recent court case shows if you breach them then the penalties can be severe.
The case brought by the ATO saw two fund trustees fined $30,000 and ordered to pay $32,500 in costs. Small business owners are probably in the majority when it comes to the self-managed super fund population so they will relate to this particular case.
A business had failed leaving a sizeable debt and the trustees sold a small industrial property that was owned by the super fund to clear the debt. That was clearly a breach of the rules but it is perhaps not hard – nor uncommon – for some small business owners to struggle with the notion of separating the assets of the fund from their other business and personal assets.
What was even more interesting though was the defence initially mounted by the two trustees – namely that their financial and legal advisers had not advised them they were in breach of the rules. According to a report in the Australian Financial Review this week that argument was dropped as the case progressed and the trustees accepted they had primary responsibility.
It is a timely reminder to SMSF trustees that they need to take the time to be aware of their responsibilities – and that they cannot outsource the responsibilities even if using external advisers or accounting services.
The ATO produces a range of publications on the roles of trustees and for people setting up a new fund they are an excellent starting point.
But this court case perhaps also signals a toughening of the ATO’s approach. Andrew Bloore, managing director of the SMSF administration company Smartsuper says the ATO is beginning to come down harder where they see trustees clearly in breach of their obligations.
"When you have legislation that gives you a tax-free income you have to expect you will have to abide by a few rules," Bloore says.
So embrace the advantages of SMSFs by all means but understand that like any long-term relationship there are responsibilities you cannot hide from.
More articles from this week's CompareShares newsletter:
Fundamentals: Telltale signs to sell that stock
Stocks: Another hot mining prospect
Smart investing: ATO toughens up on SMSFs
Resident Trader: How to profit from volatility - part 3
Stocks: Stock winners and losers from bullish currency
Stock of the week: Straits Resources weathers the storm
CFDs: ASX launches CFD exchange
Expert panel (CFDs): Top Ten CFD stocks for the week
Whatever your views, you can discuss this article - or any of Robin's articles - on our message board Your 2 Cents.
Robin Bowerman is Head of Retail at index fund manager Vanguard Investments Australia and the former managing editor of Shares and Personal Investor magazines. To receive this column by email each week go to http://www.vanguard.com.au/ and register with smart investing.
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