3 messages for SMSF trustees

3 messages for SMSF trustees:

• new ATO Guide for SMSF Trustees
• The SMSF residency trap gets tougher
• 5% in-house asset deadline approaching

This month, ClearLaw takes a brief look at 3 issues that SMSF trustees should be aware of.

1. New ATO Guide for SMSF Trustees

In March, the ATO released a new guide on the roles and responsibilities of trustees of self-managed superannuation funds. The Guide is called Setting up a self-managed super fund — What you need to know NAT 71923-03.2009. It was released as part of the ATO's education program which was foreshadowed in the reforms in 2007.

In the opening statement to the Guide, the ATO announces that when it is considering possible action to take against a trustee who has failed to comply with the law, it will take into account whether the trustee followed ATO guidance.

You can access the Guide here.

2. The SMSF residency trap gets tougher

Since a previous edition of ClearLaw in which Maddocks advised about the residency trap for SMSF trustees, the law just made the trap much tougher.

The general rule The SMSF residency trap provides that if the central management and control of a SMSF — that is, the trustees or the directors of a corporate trustee — is ordinarily outside Australia, then the SMSF ceases to be an Australian superannuation fund. If that happens, the SMSF's assets and income are likely to be taxed at the highest tax rate.

Old escape from trap Under the old rules, SMSF trustees (or directors of the trustee) could return to Australia for 28 days in every 2 year period to be treated as "ordinarily in Australia" and so escape the trap.

New rule removes escape Under the new rules, if SMSF trustees (or directors of the trustee) are based outside Australia for 2 years, then the SMSF's central management and control will be outside Australia. In that case, the fund will not be an Australian superannuation fund. The legislation does not give the ATO any discretion.

People need to be mindful of this, and the other requirements for SMSFs to qualify for tax concessions. If an SMSF trustee (or director of the trustee) is planning an extended absence from Australia, they should seek legal advice.

3.5% in-house asset deadline approaching

Advisors and trustees need to be alert that the 30 June 2009 deadline is rapidly approaching by which they need to ensure that any of the following investments in an SMSF do not form more than 5% of the total market value of the SMSF's assets:

• loans to, or investments in, related parties of the fund;
• units in a related trust;
• leases of assets to, or from, related parties (excluding business real property).

You can read further details about the in-house asset rules here