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SMSF FAQs, answered by Utopia’s super advisers

Can anyone be an SMSF Trustee?

No, you cannot be a trustee of a self managed super fund if:

• You are under 18 years of age (although, you can be a member).
• You have criminal convictions for dishonest behaviour.
• You are an undercharged bankrupt.
• You have committed a serious breach of the SIS Act.

Moreover, you cannot use an SMSF if your employer does not offer freedom of choice.

Can I set up an SMSF if I’m not an Australian resident?

No, you cannot establish an SMSF if you are a non resident. A fund cannot accept contributions from a non-resident tax payer. If you are transferring overseas, a solution may be to appoint a member and a resident trustee to the fund while you are overseas, so that the management and control remains in Australia.

What are the disadvantages of setting up an SMSF?

  1. More paperwork – filing of documents, lodgement of IAS returns, ensuring the fund lodges its returns on time and is audited. This takes some time.
  2. Responsibility for your SMSF ultimately rests with the trustees. However, you can outsource the accounting, tax and compliance to make sure the fund complies with its obligations under the SIS Act.

What can go wrong with a self managed super fund?

Apart from failing to lodge documents like an audited tax return on time, most of the problems people encounter boil down to one problem – a failure to meet the Sole Purpose Test. S62 provides that an SMSF must exist for the sole purpose of providing benefits for members on retirement, or for their dependants in the event of their death.

The other common areas of breach include:

  • Failure to act at arm’s length – selling shares or commercial property at a value other than market value to or from the superannuation fund or not paying commercial rent on a property leased to a related entity.
  • Transferring residential property to the super fund.
  • Borrowing within the super fund, other than limited recourse borrowing.
  • Using the assets of the SMSF as security for a personal loan or mortgaging as SMSF asset to provide financial assistance.
  • Lending money to a member of the SMSF or a related entity.
  • Holding art and collectables in a super fund and displaying them in the family home for a private purpose (funnily enough, this is called an in house asset).

The impact of getting it wrong is that, instead of paying 15% tax, the fund’s assets are taxed at 47%. It is therefore important to remain a regulated, compliant fund at all times

Buying investments that fall in value is not in itself a compliance breach, as even professional fund managers have seen a decline in the value of portfolios in recent times. The question is: have you acted responsibly as a trustee?

The new penalty regime imposes strict penalties for an offence and it is levied on each trustee which is why we recommend a corporate trustee structure.

Want more detailed advice?

Contact our SMSF advisers to arrange a no-obligation super review – our superannuation specialists will be able to advice that’s pertinent to you and your specific situation, enabling you to make a full informed decision on whether an SMSF is the best super option for you.