From Money Magazine, May 2005
When it comes to ensuring the DIY super fund rules are followed, the buck very definitely stops with you, writes Peter Freeman.
Setting up your DIY fund is the easy part of implementing a self-managed superannuation strategy. Making sure you run the fund correctly is much more challenging.
This is not just a question of getting your investment strategy right and then putting it into practice. While obviously important, the other big challenge is to make sure you administer your fund in accordance with the myriad rules that apply to super.
Part of this task can be handed over to your accountant or specialist fund administrator, although the more you expect them to do, the more you will have to pay.
But even if you opt to get as much help as possible, it is crucial to realise that, as a trustee of the fund either directly or through your role as a director of your own small trustee company you shoulder the ultimate legal responsibility for ensuring the fund complies with the law.
So what are the main tasks that need to be carried out? Possibly the most fundamental is the need to ensure all the various records and official returns are accurate and kept for the required length of time.
This requirement means you have to:
- Retain all the documents that substantiate the financial transactions of the fund.
- Ensure an annual operating statement is prepared, as well as a statement of the fund's finances.
- Make sure all annual returns are lodged and the annual $45 supervisory levy is paid to the tax office.
- Hold necessary trustee meetings and keep accurate minutes of their proceedings and resolutions.
- Provide reports to members as required and make sure contributions made on their behalf are allocated to them.
The documentation relating to the first three of these obligations has to be kept for a minimum of five years. For the last two, the minimum requirement is 10 years. Both the second and third of these tasks are likely to be handled by your accountant or fund administrator.
Fortunately, the tax office has done what it can to minimise the potential for administrative oversights in this area. Self-managed funds in recent years have had to lodge only one combined income tax and regulatory return. As well, if you opt to self-assess your surcharge obligations an approach adopted by most DIY funds the surcharge form (the so-called "surcharge member contribution statement") is combined with the tax and regulatory return.
However, your accountant or fund administrator can only carry out these tasks properly if you maintain full substantiating documentation. It is also now an obligation to ensure contributions are allocated to the appropriate fund member within 28 days after the end of the month in which the contribution was received.
Your other main administrative responsibilities involve making sure the fund's financial accounts are audited each year and ensuring relevant tax is withheld from any approved fund payments made to members. Such payments will consist of either lump-sum eligible termination payments or regular allocated or complying pension payments. Fortunately, it is highly unlikely you will have to register your DIY fund for the GST, so that's one administrative headache you shouldn't have.
Is the tax office still set to crack down on rule breaches no matter how trivial?
The tax office has backed away from its recent insistence that auditors of self-managed funds immediately report all regulatory breaches, no matter how small. It has now indicated auditors will be allowed to exercise "professional judgement" about whether a breach needs to be notified. This suggests auditors once again will be able to give trustees the opportunity to correct small and unintended breaches before they are reported.
The tax office has also indicated it will no longer pursue the issue of the professional independence of auditors, action that had threatened to make it difficult for many small accounting firms to continue to audit DIY funds.
For the complete story see Money Magazine's May 2005 issue. Subscribe now.