Self-Managed Super Fund Administration – get it right!

By David Baruffi, Financial Advisor

Self-Managed Super Funds are usually established so members can take more control of investing their superannuation monies.  However, establishing an SMSF to gain control of investing your super brings the responsibility of administering the fund. Investing the money and administering the SMSF are two completely separate tasks and need two different mindsets.

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Investors have to research investments, consider diversification, operate within the sole purpose test, transact investments and review their portfolio to ensure they stay within their Documented Investment Strategy (DIS) or update their DIS.

Super Fund Administrators

Administrators have to keep detailed records of decisions and transactions of the SMSF. Some fund records need to be retained for 10 years. For example, the details of share certificates need to be recorded along with the date of purchase, the number of shares and the cost of the shares.  If options or bonus shares are offered then their details need also be recorded and retained.

Property Purchases

For property purchases you will need to retain details of expenditure on the property. For example if you purchase a hot water system you need to retain the details of the purchase to establish if it is a revenue cost (i.e. a replacement of an existing system) or a capital cost (i.e. new system).  Whether the expenditure is capital or revenue will determine the tax treatment of the purchase. In addition if you carry out any work on the property you need to ensure the work is recorded either as an arms-length transaction or run the risk of it being treated as a contribution.

SMSF Members

Although SMSFs are seen as family funds, each member’s account (interest) has to be identified, tracked and treated as a separate account. The amount, type and timing of contributions require detailed records be kept.  Details of the timing and nature of any contributions made must be reported to the ATO. The incorrect identification of those contributions may have significant tax consequences.

SMSF Administration

In essence, SMSF Administration is akin to running a small business with potentially draconian tax penalties if you get it wrong.  Much of the accounting a small business undertakes, needs to be undertaken with a SMSF. As the superannuation laws change – when governments change their priorities and introduce new laws, change existing laws either immediately, retrospectively or by grandfathering – the administration of the fund becomes more complex and involved.  For example in the latest budget the government has announced new rules which affect the rate of tax on pension account income above a threshold above $100,000. Such changes may be subtle in nature but can catch the SMSF trustee unaware. Accurate record keeping is essential.  It is very difficult to recall an event that happened years ago under a law that no longer exists if you failed to keep accurate records.

Many trustees leave the administration of the fund to their accountant. This is fine if the accountant has a dedicated administrative service. However, you need to remember the responsibility for the accuracy and completeness of the records lies with the trustee and not with the accountant or administrator.

David Baruffi is a Director of Blueprint Wealth and has over fifteen years’ experience as a financial adviser.

Blueprint Planning Pty Ltd (ABN 78 097 264 554) trading as Blueprint Wealth and David Baruffi are Authorised Representatives of AMP Financial Planning Pty Limited

Disclaimer: This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.