The ATO requires that all trustees (including new trustees of existing SMSFs and directors of corporate trustees) of self-managed superannuation funds complete and sign a Trustee Declaration so as to demonstrate that the trustees understand their duties and responsibilities under the Superannuation Law, such as:
- The sole purpose test;
- General trustee duties;
- Investment restrictions;
- Record keeping, reporting and lodgement obligations
(see Trustee Declaration NAT71089 and the explanatory fact sheet NAT71128 which may be accessed on the ATO website www.ato.gov.au).
The Trustee Declaration must be completed and signed within 21 days of the appointment of the trustee and must be retained with the SMSF’s documents and records for at least 10 years.
Penalties and Personal Liability
Given the substantial fines and personal liability for non-compliance, it is vital that all trustees of SMSFs at least review and preferably sign the updated Trustee Declaration, even if they have previously signed a Trustee Declaration.
Fines are calculated in penalty units, with the maximum being 60 penalty units and the minimum 5. In December 2012, the value of a penalty unit was increased from $110 to $170, so the lowest penalty is $850 and the highest $10,200 but remember penalties are levied on an offence by offence basis and they are payable personally by individual trustees or the directors of a corporate trustee. Reimbursement of these penalties from the funds of the SMSF is specifically banned.
The ATO can, in addition, issue rectification directions and require SMSF trustees to undertake compulsory education to remedy identified deficiencies.
The three major changes to the Trustee Declaration are:
- A requirement to review the investment strategy of the SMSF on a regular basis,
- taking into account all relevant circumstances such as the risk, return, liquidity and diversification of any investments made;
- A requirement to consider whether the SMSF should hold insurance cover for its members.
It is not mandatory to take out such insurance and there is no minimum level. However, to avoid substantial penalties, Trustees must keep evidence that they have at least considered taking out an insurance policy for one or more of the members of the fund. The consideration can be contained in the minutes of trustees’ meeting and it is prudent to include consideration of insurance in those minutes each time the investment strategy of the SMSF is considered.
A declaration from the Trustees of the SMSF that the Trustee is aware of not having access to the government’s financial assistance programme in case of financial loss due to theft or fraud.
The government’s financial assistance programme is only available to trustees of the Australian Prudential Regulation Authority’s (APRA) regulated funds and not to SMSFs. If an SMSF does suffer loss due to fraud or theft, avenues for redress may be found sometimes under the Corporations Law and if the fraudulent conduct was committed by a member of the fund, approaches can be made to the Financial Ombudsman Service.
Alternatives (not everyone’s cup of tea)
If SMSF members decide the burden of compliance and penalties is too much to bear, then they can choose to transfer their superannuation to an APRA regulated fund or appoint a registrable super entity licensee as trustee and become a Small APRA fund. This course would relieve the SMSF trustees from responsibility for compliance breaches (which would be passed on to the approved trustee company) but costs and a certain ceding of control would be involved.
In any event, action is required and if you need help and advice in relation to compliance with these and other Superannuation requirements, please contact your local MSI advisor.