Address:
3/374 Pennant Hills Road, Pennant Hills NSW 2120
Call Us Today:
(02) 9980 5892

4 Mistakes That SMSF Trustees Make (And 4 Ways To Avoid Them)

Involvement in an SMSF can put certain responsibilities in their trustees hands, and those who overlook important details or find themselves reported to the ATO for failing to fulfil those responsibilities may risk incurring financial, civil or criminal penalties.

As SMSFs often involve multiple members, the risk of non-compliance grows. You might be doing the right thing, but can you say the same thing about your fellow trustees?

That is why the role of the trustee should not be taken lightly as with greater control comes greater responsibility, should the administration of your SMSF go awry.

Make sure your retirement nest egg is protected by avoiding these common mistakes made by SMSF trustees.

Breaching The Sole Purpose Test

SMSFs must be maintained for the sole purpose of providing retirement benefits to your members (or for their dependents if a member dies before retirement). You will fail the test if a member gets any financial benefit through an investment, aside from increasing the return to your fund.

For example, a member’s personal use of a holiday house purchased by the fund, without making rental repayments, would breach the sole purpose test. The rules can become complex, which is why seeking professional advice may be wise. Trustees who breach the sole purpose test will lose their fund’s concessional tax treatment and could be liable for civil and criminal penalties.

Financial Assistance & Member Loans

Trustees can make the error of accessing their SMSF funds at will instead of following strict super laws. You cannot access your SMSF bank account to give financial assistance or loans to members or members’ relatives, improve your cash flow, repay debts or make personal investments. There have also been reports of withdrawals from SMSFs accidentally on mobile banking apps. Avoid ATO sanctions and keep your bank accounts separate to ensure no premature withdrawals are made from your SMSF account.

Failing To Lodge Paperwork On TIme

SMSF trustees must comply with demanding reporting and recordkeeping requirements. Your SMSF will have an annual audit. Failure to produce certain documents or make the deadline date will result in your SMSF being reported to the ATO. It is crucial to keep accurate records of all decisions and transactions should the ATO take an interest in your SMSF. A financial advisor may be helpful to take the stress out of keeping on top of your paperwork.

Not Planning For The Death Of Another Member

The death or illness of a member of your SMSF can have devastating effects on your retirement savings if you are not prepared. Dependency on one member to administer the SMSF can destabilise the fund if they pass away. Ensure that responsibilities are evenly distributed, if necessary, and that there is a clear understanding of the processes of the SMSF.

Go further than taking out life insurance policies and take the following precautions:

  • Educate all of the members on the basic rules and strategies of your SMSF
  • Employ an accessible financial advisor to answer any questions you may have about it, and to ensure that you remain compliant.
  • Allow access to passwords and account numbers for all members
  • Regularly review your binding death benefit nominations
  • Know the processes of your SMSF, and be aware of the responsibilities of the trustees.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

Testimonial

What our Client Say

John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier

David and Alison Parker

I have been consulting J L Noller and Co. (more specifically Jane) for six years and during this time I have found her to be professional, efficient and easy to discuss all accounting and taxation matters with. Her office team are all polite and friendly also.

David and Alison Parker

Business Owner

Carl Gillmore

I have used Jane & the team for the last 6 years for all of my business & personal accounting needs. They have always been professional, easy to talk to & available when we have needed assistance.

Carl Gillmore

Carl Gillmore Landscape

John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier