SMSF Compliance is Harder Without Expert Help
Copyright (c) 2010 Nadine Davis
It would be a brave person in the current economic climate, who would attempt to manage a business through turbulent times, and at the same time, take on the burden of a self managed superannuation fund in an increasing regulatory environment. Many business failures occur because management becomes overwhelmed with issues outside normal operations, and the management of a SMSF could certainly be a distraction large enough to interrupt operational matters. A good example is the new gearing rules effective from July 2010. Not only would a SMSF manager need to quickly understand these new rules, but would also need to make decisions about how they would apply to his or her situation.
The average wage and salary earner leaves the management of their superannuation up to expert fund managers, but along comes DIY super, and everyone is an expert. As if the responsible management of a retirement investment is not enough to deal with, the tax rules and legislative changes surrounding self managed superannuation funds need to be understood, monitored and action taken. The current new gearing rules are a good example of the how the goal posts can move, with the result that fund managers must be on top of these changes to ensure compliance.
The superannuation laws have been amended for limited recourse borrowing by superannuation funds entered into on or after 7 July 2010. Some of these changes include:
=> Better protection for super fund assets if a default on borrowing occurs.
=> Only under very limited circumstances can an existing asset be replaced by a different asset.
=> Trustees of super funds cannot borrow to improve an asset.
=> Borrowing is only permitted over a single asset, or a number of identical assets with the same market value.
The provision on borrowing does not mean that a SMSF cannot borrow money. However there are a number of complex conditions around the gearing rules that must be satisfied for the transactions to be compliant, and contravening those conditions could have civil or criminal consequences.
There are other changes to the gearing rules that raise the question of the ability of a DYI fund to manage the whole process without expert assistance. Even with the best understanding of these changes, any transactions undertaken are still complex, and completing any of the necessary steps in the wrong order could have implications for the payment of stamp duty.
The amount of responsibility placed on fund managers to not only have the required knowledge but to get the processes right makes the concept of DIY Super something to be undertaken only with eyes wide open.
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