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August 2005
ATO ups the ante on Self Managed Superannuation Fund compliance
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 Lawyer in Profile  Bernie O'SullivanPartner of Maddocks Phone: 03 9288 0555 Bernie specialises in all areas of superannuation, managed investments, trusts and estate and business succession planning. Before joining Maddocks Bernie was a senior associate in the Melbourne office of Mallesons Stephen Jaques. Prior to this he was State Manager, New South Wales, for a major trustee company. Bernie has a unique combination of extensive practical experience in the marketing and sale of financial and trust services as well as a thorough understanding of the legislation underpinning such services. Bernie specialises primarily in superannuation and managed investments and succession planning and trusts. Bernie advises leading financial institutions, statutory trustee companies, superannuation fund trustees, accountants, financial advisers and high net worth individuals. Bernie is secretary of the ASFA Compliance Discussion Group (Victoria), a member of the Taxation Institute of Australia's Education Committee (Victoria), chair of the Securities Institute of Australia's Graduate Diploma taskforce 'Risk Management and Estate Planning'. He is a lecturer and examiner for the Securities Institute and presents extensively for the Taxation Institute of Australia, Financial Planning Association and Australian Society of CPA's on topics such as superannuation, business and estate succession planning and trust law developments.  
The introduction of superannuation choice legislation taking effect from 1 July 2005 has provided the impetus for many clients to consider transferring their retirement avings to a Self Managed Superannuation Fund (SMSF). The ATO is obviously aware of this and has for some time been issuing media releases or addressing conferences on the importance of trustees of SMSFs getting, and keeping, their house in order. The ATO's pet topics at present are...
Keeping Assets in the Fund NameFor some time the ATO has been reminding trustees to "keep SMSF assets in the Fund's name". A common catch-cry in ATO speeches and media releases this year, it is actually a little misconceived. As trusts aren't separate legal entities (which is why they have a trustee), legal title to assets can't actually be registered in a fund's name: they have to be registered in the trustee's name. The ATO is actually targeting the obligation of trustees, under the Superannuation Industry (Supervision) Act 1993, to "keep the money and other assets of the entity separate from any money and assets" of the trustee or, say, the employer sponsor (see s52(2)(d)). Where possible, you should record assets as being held by the trustee, say, "on behalf of the Carmody Family SMSF". This obligation to keep assets separate is crucial and you can expect the ATO to police this more vigorously over time. While the ATO announced that it would not take action where auditors reported a contravention of this requirement in the 2004/2005 financial year, it has stated that from 1 July 2005 if auditors report a contravention "trustees will be subject to scrutiny". Record KeepingThe ATO seems increasingly concerned at the lack of records kept by SMSF trustees. Keeping accurate records assists trustees of SMSFs demonstrate their compliance with legal obligations such as the duty to give effect to an investment strategy, keep assets separate and keep track of changes of trustees. The ATO has also mentioned that SMSF trustees regularly fail to document leasing arrangements. Taking measures to keep these kinds of records is not difficult: they're simple steps to help ensure the fund's ongoing compliance. Compliant StructuresFrom July 2005 the ATO will be contacting SMSFs to confirm important details such as number of members, trustee structure and contact details. Where the ATO becomes aware through this process that an SMSF structure is non-compliant, they have said that trustees must make the necessary changes to ensure the fund meets the definition of an SMSF, and notify the ATO accordingly. Overall, one gets the idea that the ATO is ramping up its regulatory supervision of SMSFs. It's important to realise this has been a gradual process over the past two years and you would expect that this "tap on the shoulder" approach will escalate to more interventionist regulation over time. Quick tip: Request an up-to-date Product Disclosure StatementThose clients considering a move from retail superannuation funds, whether or not to a SMSF, should be encouraged to request the most recent version of their existing fund's PDS. From 1 July 2005, all PDSs issued by such funds must contain prescribed information about fees and charges in a common format: this makes it easier to decipher just how much fees and charges are affecting member returns. And because all such funds have to comply, it also makes it simpler to compare different funds' fee structures.
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