Common SMSF mistakes and how to avoid them

Common mistakes made by those with Self-Managed Super Funds are many and varied, but there are ways to avoid making them and thereby reduce your risk of being fined.

Perhaps the most common mistake is withdrawing money from your Fund or paying for non-Fund expenses before you are entitled to access Fund money.

If you haven't met the conditions of release, doing the above will cost you in hefty fines and penalties from YOUR hip pocket, because you can't withdraw further money from the Fund to pay these fines and penalties.

The general conditions of release that allow this are:

  • Retirement: Actual retirement depends on a person's age and, for those under 60 years old, their future employment intentions. A retired member can't access their preserved benefits before they reach their preservation age.
  • Transition to retirement (attaining preservation age): Members who are under 65 and have reached preservation age, but remain gainfully employed on a full-time or part-time basis, may access their benefits as a non-commutable income stream.
  • Attaining age 65: A member who reaches age 65 may cash their benefits at any time. There are no cashing restrictions. (It isn't compulsory to cash out a member's benefits merely because they have reached a certain age).

    Other common mistakes include:

    • Transferring property in your name (for example an investment property) into the Fund.  This may breach either the in-house asset rules or the non arms length rules.
    • Buying investments in your name instead of in the legal name of the Fund.
    • Buying a property in the Fund that you use or intend to use as a holiday home for either yourselves or any other person related to you.
    • Making an investment that does not have the sole purpose of being invested for the benefit of the Fund Members or is outside the scope of the Investment Strategy of the Fund.
    • Buying a commercial property that you intend to use as your business premises and either not paying any rent to the Fund, paying it late or paying at a less than commercial value.
    These are only a few of the most common mistakes we have seen or heard about through cases taken to court by the Tax Commissioner.

    Key actions to avoid any breaches of the rules:

    If you are about to make an investment decision with respect to SMSF money which is anything other than buying listed securities (except those made by/under instruction from a financial advisor), call our office.  A quick call will ensure you are not about to breach any investment standards.

    If you have borrowed money from your fund; lent money from your fund; or placed a charge over Fund assets, call your accountant or financial advisor immediately.  This may need to be paid back, rectified or certified before 30 June 2014.

    Never use fund money for personal use.

    Always keep records relevant to the SMSF.  This includes:

    • Financial accounts
    • Source documents (eg buy sell agreements for all investments; invoices to support all outgoings of the fund)
    • Trustee minutes
    • Other documents relevant to the decision making of the fund.

    Ensure all investments are in line with the Super Fund Investment Strategy.

    Ensure all assets are correctly acquired in the name of the Super Fund, such asABC As Trustee For The XYZ Superfund.

    Ensure all investments are conducted at arms length, and that a secondary market is used to facilitate the transaction when available, or in the absence of the secondary market, an independent qualified valuer is engaged to provide documented support of the transactions' value.

    Our office will ensure the Annual Returns for your Fund are prepared with full work papers to help you meet your obligations, and a proactive auditor is engaged who will provide guidance on how to rectify any Financial and Regulatory breaches.