6 ways to help your SMSF client

The benefits of a self-managed superannuation fund may be obvious to many but the risks and challenges can bring many trustees undone.

In the past four years, between 8,000 and 12,000 SMSF funds have been wound up each year, either by the trustees themselves or the Australian Taxation Office.

That’s a small proportion of the more than half a million SMSF funds currently operating but it hints at the difficulty of adhering to the SMSF rules.

Nonetheless, the most common breaches are at once the simplest to avoid and the easiest areas to make a mistake.

1. Withdrawals

Illegally withdrawing funds from the SMSF makes the top 10 list of broken rules every year.

That’s sometimes accidental, says Marcus Evans, Commonwealth Bank’s Head of SMSF Customers.

“People get into their online banking and make legitimate mistakes,” he says.

Evans recommends that financial advisers help their clients by making sure that online SMSF accounts are clearly marked to avoid errors.

Obviously, clients also need to know that the funds cannot be touched (unless legitimately). But if the SMSF account is too easily accessible, it can be a difficult to ignore, particularly for small businesses with cash flow problems.

Encouraging clients to establish a safe but practical way of working with their accounts online may help to prevent breaches.

2. Contributions

Financial advisers can also make sure that clients keep track of their contributions to make sure they don’t contribute too much, says Evans.

That’s especially important for those members who’ve chosen to salary sacrifice.

3. Assets

Double-check that all of the assets purchased by the SMSF are in the fund name.

It can be a problem for those funds with individual rather than corporate trustees, says Evans.

4. Sole purpose test

Make sure that your client hasn’t breached the ‘sole purpose’ test if their SMSF includes investments in collectibles or property.

The rules are more strictly policed now, warns Evans. “Make sure that the rules are followed particularly around usage, insurance and storage.”

5. In-house assets

The value of in-house assets should also be monitored to ensure they remain below 5 per cent of the fund’s total assets.

In-house assets are:

  • a loan to, or an investment in, a related party of the fund
  • an investment in a related trust of the fund
  • an asset of your fund that is leased to a related party.

“You can’t just assume that if it was under five per cent this year it will be the same next year,” says Evans.

6. Investment strategy

Sometimes, new SMSFs or those set up by a business owner can take their eyes off the ball when it comes to the investment strategy.

“Make sure that they haven’t become too busy running their business or too distracted to make investment decisions that are for the benefit of the fund and its members,” says Evans.

“It should always be top of mind to review the strategy, making sure that the client is either personally dedicating enough time to managing their investments or accepting the fact that they don’t have as much time as they thought and obtaining appropriate advice.”

“They need to know that it’s not enough just to make contributions to their fund, they need to maximise the investments,” he says.

More information about the SMSF rules can be found at the ATO website and in the ATO’s free webinars. You or your client can also contact the Commonwealth Bank’s SMSF team on 1800 138 363.

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