It is expected that the Government’s response to the Cooper Review Report will endorse increased compliance obligations by SMSF trustees.

Trustees and beneficiaries of Self Managed Super Funds (SMSF’s) should ensure that the Fund remains compliant at all times. During the 2009/2010 year, 185 SMSF’s were made non-complaint by the Tax Office for serious non-compliance with superannuation laws. The financial and other consequences of being made non-compliant are extremely significant and include the fund paying tax at the highest marginal tax rate on the total assets held, and any income earned, by the fund in the year the fund is made non-complying.

The main breaches giving rise to SMSF’s being made non-compliant were:
• Providing loans to related parties;
• Releasing superannuation early;
• Serious and significant breaches of the ‘in house asset’ rules; and
• Refusal by the trustees to lodge returns.

The ‘in-house asset’ rule states that your fund can only have 5% of its assets invested as in-house assets. This means that if your fund has $500,000 in assets, only $25,000 of those assets can be in-house assets. What is an in-house asset? An in-house asset is an asset that is:
• a loan to, or an investment in, a related party of the fund;
• an investment in a related trust of the fund; or
• an asset of the fund that is subject to a lease or lease arrangement between the trustee of the fund and a related party of the fund.