SMSF Insurance Professionals has officially launched an SMSF trustee liability insurance policy covering the cost of trustee liabilities, fund liabilities, civil penalties, and audits and penalties from the Australian Taxation Office (ATO).
SMSF Insurance Professionals principal Peter Kalantzis said the tailored professional indemnity (PI) insurance for trustees was a condensed version of the policies protecting hundreds of thousands of members in industry and retail super funds, but at an SMSF level.
“Industry funds and retail funds buy this insurance policy to protect the fund and its trustees against third-party claims, but we have a situation where SMSFs are smaller versions of those super funds and there’s no insurance policy protecting them,” Kalantzis told selfmanagedsuper.
“This PI policy is designed to cover the SMSF itself and the trustee against negligence, so in the event of a situation where the ATO believes the fund is either non-complying or has made a breach that may affect the members, the policy will respond and cover the grievances.
“The policy covers investigation costs, the penalties associated with ASIC (Australian Securities and Investments Commission) or the ATO and also covers fines. It takes care of the majority of the issues that may arise from running an SMSF.”
The SMSF is able to acquire the cover and the premiums are tax deductible.
SMSF Insurance Professionals noted a need for advisers to better cover themselves against lawsuits through an individual SMSF policy that would respond rather than a dealer group’s PI, Kalantzis said.
“Many of my adviser and accountant clients have had PI claims and there was a situation where an adviser of a small dealer group gave the same strategy advice amongst 30 individual SMSF clients, designed to reduce the funds’ exposure to a certain amount of tax,” he said.
“Now the ATO ruled that the particular strategy did not meet the Superannuation Industry (Supervision) (SIS) Act and, as such, all 30 SMSFs were found to be non-complying and each were issued tax notices.
“So in this particular case, the adviser’s dealer group’s PI policy was responsible for paying out all those individual claims, which added up to about $2 million. If SMSFs took out this particular policy, it would’ve been a different experience.”
From 1 July, the ATO commenced its new penalty regime, which allowed spot fines in relation to SIS breaches.
“Given the popularity of SMSFs and the response from the ATO and ASIC clamping down on SMSFs, it is very important that trustees understand their responsibilities and look at ways of protecting their fund,” Kalantzis said.
“I believe it’s just a matter of time before ASIC mandates insurance when purchasing an SMSF.”
He said a number of insurance policies had already been taken up.
“We’re continuing our dialogue with a lot of accountants and advisers who are quite keen on this,” he said.