7 Deadly Super Sins Brochure

The Seven Deadliest
Super Sins

SMSF’s

A word of warning

The fines outlined within this
booklet are PER trustee. If
you are a corporate trustee,

you will be fined
once, but if you
have individual
member trustees
you can be fined

up to
4 times for
the one offence.

Australians have the option of managing their own retirement
investments by opening a self-managed superannuation fund. Below
are five key benefits which may arise from choosing this strategy.

1. Generally lower fees than a retail or industry fund;

2. Increased control, as you are able to select from a wide range of
investment options and can alter your investment mix as desired;

3. The option to consolidate your super balance with up to three
other people can open up greater investment opportunities
through increased available funds;

4. Assets, such as shares, managed funds, and commercial property,
(including your business premises) can be added to the SMSF
allowing the consolidation of family assets.

5. Estate & tax planning flexibility – you can use strategies to reduce
tax and control how your benefits are distributed on death.

While these are all great benefits, they do come with a range of
obligations.

The ATO has recently changed the rules pertaining to SMSFs. What
many Australians don’t realise is that they are at serious risk of
being heavily fined for mismanagement of their funds. This is a risk
regardless of whether their actions were intentionally in breach of
the legislation or not.

This booklet has been written to highlight seven common scenarios
in which SMSF trustees can find themselves in breach of SMSF
legislation. By being aware of these common mistakes, you may be
able to avoid facing thousands of dollars in fines.

Deanne Firth

Director, Tactical Super



SCENARIO 1

Scenario: Your son or daughter wants to buy a new car,

so you lend him or her the money from your SMSF at a
commercial rate of interest.

Logic: You believe it’s a good deal for your SMSF,

because the interest rate your son or daughter will
pay is higher than what you would be getting by
simply keeping the money in your term deposit.

Rule: A fund cannot lend money or give financial

assistance to a member or their relatives, regardless of
whether they pay interest.

Fine: $10,200 per trustee is payable. For example,

if you and your partner are both trustees of the same
SMSF that funded the loan, then you might expect to
pay $20,400.

Superannuation Industry (Supervision) Act 1993

The trustees must not loan monies or provide financial
S65 assistance to any member or relative at any time during

the financial year

See SMSFR 20081/ for ATO examples

The Seven Deadliest Super Sins 5



Scenario 2

Scenario: You purchased an apartment in Noosa using

your SMSF, the value of which is more than 5 per cent
of the fund’s total assets. You would like to spend a
week’s holiday at the apartment, and plan on paying a
market rent to the fund.

Logic: Because you’ll be paying the market rent, the

fund will receive the same amount of money it would
from anyone else.

Rule: Even if they pay the market rent, a fund member

cannot stay in the apartment. This is because an asset
leased to a fund member is classified as “in-house”,
and a fund is only allowed to have up to 5 per cent of
its assets as in-house. The same fine would occur if
any fund member’s relatives stayed in the apartment.

Fine: $10,200 per trustee.

Superannuation Industry (Supervision) Act 1993

S80-85 The trustees must comply with the
in-house asset rules

The Seven Deadliest Super Sins 7



Scenario 3

Scenario: You log into internet banking, and accidently

transfer money out of your SMSF to pay your private
electricity bill.

Logic: It’s really easy to get your online accounts

confused, and accidently send payments from the
wrong account.

Rule: The payment of the electricity bill is considered

to be the SMSF providing financial assistance to a
member, and could be classified as the illegal early
release of super.

Fine: $10,200 per trustee.

Superannuation Industry (Supervision) Act 1993

The trustees must not loan monies or provide financial
S65 assistance to any member or relative at any time during the

financial year

S52(2) The assets of the SMSF must be held separately from any
(d) or Reg assets held by the trustee personally or by a standard
4.09A employer sponsor or an associate of the standard
employer sponsor

The Seven Deadliest Super Sins 9



Scenario 4

Scenario: Your business rents its workshop from your

SMSF, but things have been tough lately so you stop
paying the rent.

Logic: It’s my money anyway, so it won’t matter if I

don’t pay rent until things pick up again.

Rule: All transactions must be maintained at arm’s

length. An external property owner would not excuse
rental obligations just because the person responsible
for paying was having a tough time financially.

Fine: $10,200 per trustee

Superannuation Industry (Supervision) Act 1993

S109 All investment transactions must be made and
maintained at arms-length – that is; purchase, sale
price and income from an asset reflects a true market
value/rate of return

The Seven Deadliest Super Sins 11



Scenario 5

Scenario: You dislike dealing with paperwork, so when

you receive documents from your accountant, you
throw them straight in the bin.

Logic: Everything is kept electronically these days,

so my accountant will have a copy of everything
meaning I shouldn’t have to store anything physically.

Rule: Trustees must keep minutes of all meetings, and

retain them for a minimum of 10 years.

Fine: $1,700

Superannuation Industry (Supervision) Act 1993

s. 103 — duty to keep minutes.
The trustees must keep minutes of all meetings and retain the
minutes for a minimum of 10 years.

The Seven Deadliest Super Sins 13

21 days

Scenario 6

Scenario: Your son or daughter puts some money into

your SMSF. He or she becomes a trustee, but doesn’t
sign the application for membership, or the ATO
trustee declaration.

Logic: With so much paperwork these days, it can be

easy to forget to process the trustee declaration.

Rule: The ATO trustee declaration must be signed

within 21 days of becoming a trustee.

Fine: $1,700

Superannuation Industry (Supervision) Act 1993

s. 104A(2) — declaration relating to trustee duties
Trustees who became a trustee on or after 1 July 2007 must sign and
retain a trustee declaration

The Seven Deadliest Super Sins 15



Scenario 7

Scenario: You keep accidentally paying the SMSF’s

accounting fees from your personal bank account,
instead of from your SMSF. Six months later you
reimburse yourself from the fund’s account.

Logic: It’s my money anyway, so it won’t matter which

account I use to pay the fees from.

Rule: SMSFs must not borrow money or maintain an

existing borrowing (except in specific exempted
circumstances). By receiving money from outside
sources, and not immediately reimbursing them, the
fund is deemed to have borrowed money.

Fine: $10,200

Superannuation Industry (Supervision) Act 1993

s. 67(1) — borrowing prohibition
The trustees of the fund must not borrow any money or maintain an
existing borrowing (not listed as an exemption)

The Seven Deadliest Super Sins 17

Summary of Fines

The contraventions which will be subject to
administrative penalties are as follows:

Provision of the SIS Act Penalty Fine (AUD)
units 3,400
s. 34(1) — prescribed operating standards
20

s. 35B — accounts and statements 10 1,700
The trustees must prepare, sign and retain
accounts and statements

s. 65(1) — lending prohibition 60 10,200
The Trustees must not loan monies or provide
financial assistance to any member or relative
at any time during the financial year.

s. 67(1) — borrowing prohibition 60 10,200
The trustees of the fund must not borrow
any money or maintain an existing
borrowing (not listed as an exemption)

s. 84(1) — in-house asset rules 60 10,200
The trustees must comply with the in-house
asset rules

s. 103(1) — duty to keep minutes – two or 10 1,700
more trustees
The trustees must keep minutes of all
meetings and retain the minutes for a
minimum of 10 years

18

s. 103(2) — duty to keep minutes – one 10 1,700
trustee
The trustee must keep minutes of all meetings 10 1,700
and retain the minutes for a minimum of 10 years 10 1,700

s. 103(2A) — retention of election relating to 10 1,700
geared investments
10 1,700
s. 104(1) — record keeping 60 10,200
20 3,400
s. 104A(2) — declaration relating to trustee 5 850
duties 5 850
Trustees’ who became a trustee on or after 5 850
1 July 2007 must sign and retain a trustee 5 850
declaration

s. 105(1) — member reports

s. 106(1) — notification of significant adverse
events

s. 106A(1) — notification of change in status
of an entity

s. 124 — appointment of investment manager

new s. 160(4) — compliance with an
education direction

s. 254(1) — provide information to regulator

s. 347A(5) — participation in statistics program

Note

The value of one penalty unit is currently $170:
s. 4AA of the Crimes Act 1914 (Cth). Accordingly, the
above administrative penalties per breach will range
from $850 to $10,200.

The Seven Deadliest Super Sins 19

Talk to Us

Tactical Super - SMSF Audit Specialists
03 5222 2006
[email protected]
www.tacticalsuper.com.au