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17 May 2018

Self Managed Super Funds (SMSF): Civil Penalties

The SMSF administration vehicle for superannuation is problematic because it give members (who are both the trustee and the client) the illusion of control while materially increasing the members exposure to liability.

In essence, a SMSF administration vehicle moves all responsibility from an unrelated trustee of a Public Offer superannuation vehicle to the members.

Breaching the Superannuation Industry (Supervision)(SIS) Act 1993 for a SMSF trustee is as simple as not documenting investment decisions, not keeping adequate financial records of transactions, using funds to invest in a holiday house for members and or lending money to members.

If SMSF trustee is found to have contravened the SIS Act, the ATO can now seek a maximum civil penalty of $420,000.

In addition to civil penalties, a members can also be charged with a criminal offence and if found guilty of dishonesty and deception can be imprisoned for up to 5 years.

This fact should be very concerning.

Fortunately Public Offer superannuation vehicles such as a master trust and wrap platforms exist and are often the best and least expensive structure for crafting a diversified investment strategy UNLESS the investment strategy in superannuation requires the purchase of real property and or purchase of shares in an unlisted private company where there are no related parties.

Key should be to use the right vehicle (SMSF or Public Offer) for the purpose required.

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At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.

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