Self Managed Superannuation Funds: What are the Risks Associated with SMSFs?

The Australian Taxation Office (ATO) requires new trustees to make a declaration that they understand their responsibilities and obligations as an SMSF trustee, including to:

• ensure that the SMSF is managed in compliance with the relevant laws and be responsible for and control the SMSF;
• maintain the fund for the sole purpose of providing retirement benefits to SMSF members, or to their dependents if a member dies before retirement;
• accept contributions and pay benefits (pension or lump sums) to members and their beneficiaries in accordance with superannuation and taxation laws and the SMSF trust deed;
• value the fund’s assets at market value for the purposes of preparing financial accounts and statements;
• have the financial accounts and statements for the SMSF audited each year by an approved SMSF auditor; and
• meet the reporting and administration obligations imposed by the ATO.

It is important that trustees understand that they remain responsible for managing the fund even if they outsource some or all of their responsibilities to external service providers.

• a lack of access to the Superannuation Complaints Tribunal to resolve SMSF complaints;
• using individual trustees as opposed to a corporate trustee; and
• a breakdown in the relationship of fund members, especially in circumstances where the membership structure of the SMSF is unusual.

It is important that trustees understand:

• the benefits associated with asset diversification and investing across a number of asset classes (e.g. shares, real property and fixed interest products) in a long-term investment strategy, such as improving the risk and return profile of an SMSF fund;
• there are some restrictions on SMSF investments and, as part of their obligations, trustees are prohibited from entering into certain transactions, such as lending the fund’s money, or providing financial assistance to a member of the fund or their relatives; and
• they should conduct a regular review of the SMSF’s investment strategy to ensure that the investment strategy continues to reflect the purpose and circumstances of the fund and its members.

• establishment costs (e.g. preparation of a trust deed and development of an investment strategy); and
• ongoing costs associated with operating an SMSF (e.g. annual administration and investment costs, the cost of outsourcing the trustee’s compliance obligations and statutory charges).

Please see Appendix H for more details and examples of the costs.

It is important to be aware of the process for winding up an SMSF and the likely costs associated with that process.