Individuals considering establishing an SMSF need to be wary of their compliance obligations and consider carefully who the best service provider is to assist them to meet these responsibilities, a sector administration specialist has warned.
Australian Superannuation and Compliance founding principal Ravi Subramaniam said the responsibility for compliance was currently a grey area causing confusion and angst for many SMSF trustees.
“The trustee maintains it is the role of the adviser, while the adviser believes it’s the function of the trustee,” Subramaniam said.
“With hefty ATO (Australian Taxation Office) tax penalties of up to 47 per cent plus the Medicare levy on the total value of the SMSF, it is an immensely important area that demands clarity and certainty for investors.”
He said a lack of disclosure requirements regarding compliance responsibility was having a detrimental effect on the situation.
“Currently there is no requirement to disclose who is responsible for the SMSF compliance as ultimately it all falls into the lap of the trustees as per the regulations – but herein is the problem,” he said.
“Each SMSF trustee is different and there is no consistency in whom they use as their service providers, that is, [it could be an] investment adviser, financial planner, accountant or administrator.”
The administrator was the provider that was left to rectify circumstances where an SMF had breached the law and the situation was not being helped by both advisers and trustees trying to abrogate their respective responsibilities, he said.
In assessing the issue, he identified four specific areas creating the most compliance difficulty: related-party transactions, limited recourse borrowing arrangements, private unit trusts and collectables.
However, he pointed out some problems arose out of simple mistakes such as having SMSF assets purchased in the trustee’s name rather than the fund.
While he said he felt many advisers were not significantly across compliance issues, practitioners supported by specialist designations, such as the SMSF specialist adviser accreditation from the SMSF Professionals’ Association of Australia, had the best understanding and knowledge of the requirements.