A recent case decided by the Administrative Appeals Tribunal contains important reminders for anyone who has a self-managed super fund.

As background, a company carrying on an accountancy practice set up a self-managed superannuation fund way back in 1975. The practitioner was the sole director and sole shareholder of the company, and was the trustee and sole beneficiary of the fund. He ran into troubles in 2018, when the ATO investigated alleged flaws and misdemeanours.

The AAT said that the trustee fell down in 2 key areas. First, there was a mixture of activity between the 2 entities – the fund did not keep its affairs separate from the business of the accountancy practice, and vice versa. For example, the trustee could not explain why the fund advanced funds to him and received extended credit from him, and why he banked in his own account significant funds that were paid to the fund.

The other failing was what the AAT termed a “flawed” governance model. The trustee ran a one-man show. The fund auditor was his daughter. This meant that there was no input from any other professionals.

This governance model meant that there was no opportunity for an independent review of decisions and no review of accounting processes. The outcome was that the fund received a notice of non-compliance from the ATO, which meant it lost access to the beneficial tax treatment that complying super funds receive (eg reduced tax rate on earnings etc). The cost to the fund was significant.

But the case shows that there is no situation that cannot be fixed. The ATO had initially disqualified the trustee from acting as a trustee. The AAT overturned this, on the proviso that the trust had to change its governance. This involved ensuring that there were adequate accounting systems to produce reliable fund accounts, a clear separation between fund operations and any other business activity, appointing independent auditors and seeking independent advice about investment decisions.

The case also highlights how easy it is to breach the myriad of provisions that apply to superannuation and self-managed super funds.

We have the expertise to handle the complexity of the superannuation laws. We can give your SMSF a quick “health check” to ensure that it is doing all that is necessary to ensure its complying status.