A self-managed super fund can be a tricky business as there are plenty of traps SMSF trustees can fall into when it comes to super compliance, but what are some of the biggest mistakes you can make. Are you aware that there are rules which govern when and how you can use the money in your self-managed superannuation fund? These rules ensure that people with self-managed super funds manage their funds strictly on a commercial or arm’s length basis. This also means that assets must be bought and sold at market value and any income generated should demonstrate a true market return. Here are the top five self-managed superannuation mistakes to avoid.
The Fund Lending Money to a Fund Member
The number one mistake is the fund lending money to a fund member. For instance, John wants to buy his daughter a car so he lends her the money from his self-managed super fund at a commercial rate of interest. A self-managed super fund cannot lend funds or provide financial assistance to a member of the fund or their relatives.
A Fund can Only Have up to 5% of its Assets Classed as In-House
Let’s say a member Sarah has purchased an investment property primarily to get a great return, she also wants to use the house as holiday accommodation for her family paying a market rent to the fund of course. An asset leased to a fund member is classified as an in-house asset; a fund can only have up to five percent of its assets classed as in-house.
The Fund Providing Financial Assistance to a Fund Member
Carlos logs into internet banking and accidentally transfers money out of his self managed super fund to pay his private electricity bill. This is considered to be the fund providing financial assistance to a fund member which may be classified as the illegal early release of super fund. Check here.
Allowing Rental Payments to Stop
Bob’s business rents its workshop from his fund but things have been tough so Bob stops paying the rent. An external property owner would not allow rental payments to stop just because the person owing the money was struggling.
Trustees not Keeping Minutes of all Meetings
Lucy hates paperwork when she receives documents from her accountant she throws them straight into the bin. Trustees must keep minutes of all meetings and retain them for a minimum of 10 years.
ATO Trustee Declaration not Signed in Time
Jack puts money into his parent’s self-managed super fund; he becomes a trustee that doesn’t sign his application for membership or the ATO trustee declaration. The ATO trustee declaration must be signed within 21 days of becoming a trustee.
Self-Managed Funds Borrowing Money
Bill pays the self-managed super funds accounting fees from his personal bank account he keeps forgetting to take the money out of the fund six months later he reimburses himself from the funds account. Self-managed super funds must not borrow money or maintain an existing borrowing except under specific circumstances; by not seeking immediate reimbursement the fund is deemed to have borrowed money.
By being aware of these common mistakes you may be able to avoid facing thousands of dollars in fines. As you can see, running your own self managed super fund comes with a range of obligations. For more details, visit: http://www.smsfselfmanagedsuperfund.com.au/smsf