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Smart Investing
ATO on SMSF watch
 November 19, 2007
Robin Bowerman
The Australian Taxation Office’s recent warnings that it will audit about 10,000 SMSFs in 2007-08 may seem, at first glance, little more than just scratching at the surface. Just consider there are now 360,000-plus funds, and their numbers are rapidly growing.
But the tax office – acting in its role as auditor of self-managed super – also intends to audit the work of 900 fund auditors in 2007-08. These auditors are seen as one of the basic keys to uncovering possible breaches by thousands of SMSFs being audited by them.
Fund members should be aware that auditors are now required to report to the tax office all breaches of superannuation law by a fund – even if the breaches have been rectified.
The commissioner of taxation, Michael D’Asenzo, recently pointed out that most legal breaches by SMSFs were made because of a lack of knowledge by the trustees rather than because of an intentional disregard for the law. (Under superannuation law, all members must also be trustees – unless there is a corporate trustee.)
And it is not difficult to predict that inadvertent breaches of super law will increase given the rush to set up SMSFs on the eve of the new super system.
Several points are worth considering. Rectifying compliance errors in your SMSF can waste a considerable amount of your time. It is worth gaining a solid understanding of the fundamental rules of self-managed super, considering whether to obtain quality financial planning advice and, finally, ensuring that your fund is being audited annually by an experienced and highly competent approved auditor.
The most common breaches of the Superannuation Industry (Supervision) Act (SIS) include breaking the in-house assets rule (the total value of a fund’s investment, loans and leases in or to related parties must not exceed more than 5 per cent of its assets); failing to operate a fund solely to provide for members on their retirement; and acquiring assets from members or related parties (with the exceptions of listed securities, business real property, and an asset that does not breach the in-house asset rules).
Surely, it is much better to concentrate on the opportunities in SMSFs rather than working your way through auditor (or tax office) queries.
More articles from this edition of CompareShares:
Stock Lab: Starting a share portfolio from scratch
Markets: Triple threat to US economy - what it means for Aussie investors
Advisor Lounge: Superannuation - starting a pension from super
Trading: Timing the market
Stocks: Stock of the week - Discovery Metals
Stocks: Stocks in focus - alternative energy
Smart Investing: ATO on SMSF watch
Expert Panel (Warrants): How to profit from oil price fluctuations
US Commodities: Gold ETF accumulates 600 tonnes of gold
Investing: LICS defend below-benchmark performance
Property: Scarcity to keep rents rising
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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