How to help your SMSF clients navigate complex regulations

Key points

• The SMSF sector has experienced strong growth.
• The ATO regularly updates compliance, with significant penalties for non-compliance.
• Division 296 changes, if they pass, will add new layers of complexity for SMSF trustees, auditors and accountants.
• Accountants must equip themselves with information on how to help support their SMSF clients.

Navigating the ever-changing rules governing self-managed super funds (SMSFs) is no easy task.

The Australian Taxation Office (ATO) is sharpening its focus on trustee compliance, and the Division 296 regulation could further complicate matters if it passes. It has never been more important for accountants to ensure their SMSF clients follow the rules and avoid potential pitfalls.

By proactively addressing these challenges, accountants can protect their clients' funds and give them peace of mind in a tricky regulatory environment. Here is some context on SMSF management rules, and tips for minimising risks for your SMSF clients.

SMSFs give trustees greater freedom, but they must remain compliant

Australians are lucky to be able to manage their own retirement funds and choose their own asset classes, but they must take the rules seriously, warns the Institute of Public Accountants' (IPA) General Manager of Technical Policy, Tony Greco.

"It's like going to the beach – you have to stay between the flags,” Greco says. “To take advantage of SMSF flexibility and tax concessions, you have to operate within the guidelines."

This is why SMSFs require an annual audit.

"Once you swim outside the flags, the auditors will flag it to the ATO, which will chase it up,” he says. “The number one rule is knowing what those restrictions are."

A world of complexity

The problem is that the rules are complex. 

Shirley Schaefer, who leads the superannuation team at BDO in South Australia and has managed SMSFs for nearly 30 years says staying on top of changes can be a "full-time job".

"The SMSF changes are like a Sarah Lee cake, layer upon layer,” she says. “If you want to do something with your self-managed fund beyond investing in listed shares and term deposits, it's complicated."

Guidelines outlined in the Superannuation Industry Supervision (SIS) Act dictate how the fund should be operated, ensuring investments are at arm's length and don't personally benefit the trustee.

"This means you can't buy residential property and live in it or let a relative live in it,” Greco says. “You can't put artwork in the fund and display it in your home. You can't lend to the fund without following proper procedures.

"There are numerous obligations on trustees because they're managing their own money, but often trustees make mistakes without realising it."

Schaefer, who will be speaking at the upcoming IPA event, Preparing For Success: SMSF Challenges In 2024-25, notes that the ATO is cracking down on trustees accessing their funds prematurely.

"Superannuation is about protecting your money for your retirement," she says.

"The ATO is increasingly applying penalties to trustees who breach the rules, and these can be as high as $12,000 per infraction.

"Getting it wrong can be very expensive."

Division 296 to create more compliance

Federal government proposals to reduce tax concessions for super balances over $3 million could add new layers of complexity. 

The new tax, known as Division 296, could apply from the 2025-26 financial year. It means earnings on super balances exceeding $3 million in a financial year will be taxed at 30 per cent rather than 15 per cent.

These changes would also place a greater emphasis on valuations being done properly. Every asset needs to be valued to reflect current market valuations.

10 tips for success

Accountants play an important role in helping their SMSF clients navigate these obligations and maintain detailed records.

However, SMSF compliance can also be complicated for them too.

"If you manage a significant number of SMSF trustee clients, you develop the expertise. But for those handling only a few funds per year, it's a lot of information to retain," says Schaefer.

"The rules change constantly, as does the focus of the ATO. Focusing on high-risk areas will help you better support your clients."

Here are the top 10 things to look out for with SMSF clients to keep the ATO and auditor at bay: 

1. Contribution changes 

Be aware of changes to contribution limits and ensure your clients are maximising their super savings.

2. Recontribution strategies

Without the work test requirement for non-concessional contributions up to age 75, clients can reset the tax status of their superannuation benefits.

3. Hackers and scams

If something seems too good to be true, it probably is. Beware of anyone offering early access to SMSFs. 

4. Division 296 Tax ($3 million threshold)

The legislation is not passed, so clients should wait to see the final details before acting. Proper asset valuation is crucial.

5. Asset valuations

Ensure all investments of the SMSF are assessed at market value every year.

6. Investment strategies

Ensure the SMSF has a documented investment strategy that is actively implemented.

7. Related-party transactions

All transactions must be at arm's length, or they may be taxed at a higher rate of 45 per cent. Your investments cannot be for your own personal benefit.

8. Late lodgement

The ATO may perceive late lodgement as an attempt to hide something, so timely filing is essential.

9. New fund establishments

The ATO scrutinises new fund establishments to ensure they are not being set up merely to access superannuation funds.

10. Illegal early access

Superannuation money is for retirement. Accessing it early is illegal and will be taxed at the member's personal tax rate.

Seek out a specialist

If you're ever unsure, contact an accountant, lawyer or financial planner with SMSF expertise, says Schaefer.

"Even if you just want to check something, seek out a superannuation expert. We do it all day, every day, so we have the information at our fingertips." 

Preparing For Success: SMSF Challenges In 2024-25 event will be hosted virtually by the IPA on October 3.