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While many Australian’s consider themselves capable of doing a self-managed superannuation fund (SMSF), some in the industry are concerned that the rising number of SMSFs may not be a good thing. The main reason? They are concerned that many trustees/members may disregard or at least not give full attention to all the requirements and responsibilities that come with running a super fund. If you are considering taking over management of your retirement savings investment, it is important to note that absolute compliance with the law is essential. For an SMSF to be found non-compliant will, at the very least, see the fund lose its concessional tax treatment, and be subject to tax at a rate of 45% on, broadly, the next value of the fund. In addition, there may be heavy penalties and possible prosecution. When handled correctly can be a very powerful retirement savings vehicle. It is good for long-term wealth accumulation and asset protection within a tax-effective structure, and there is plenty of scope to get lost in on some of the basic, though numerous, compliance tasks. When you consider the pros and cons, it quickly becomes clear that mishandling your SMSF can prove disasterous. The most likely place to get in trouble with your SMSF is exceeding the annual concessional contributions cap. Of course, this can affect everyone in superannuation, but an added complication for SMSFs is that most funds will have their administration tasks completed annually, and in arrears. Hence, members may not find out that a contribution took the member over the contributions cap until the accountant does the books for the fund, which could be months after the end of the relevant financial year. The second potential pitfall for SMSFs is investing in property in an inappropriate manner. One way this can happen is when an investor puts a deposit on a residential investment property, and then sets up an SMSF with the aim of owning that property through the fund. But in these circumstances, it is not the SMSF that has bought the real estate but a private person. And once the SMSF is established is can only acquire certain assets from related parties such as ‘business real property’. Ordinary income and statutory income that a complying SMSF earns from assets held to provide for super income stream benefits is exempt from income tax. This is referred to as exempt current pension income (ECPI), and the Tax Office reports that this is an area that causes headaches for SMSFs claiming tax deductions. It also states that funds may need an actuarial certificate to determine the correct amount of income which will be exempt. The bottom line is that SMSFs are complex and need to have much attention to detail. If you are not confident in your abilities to handle all of the compliance issues successfully, this may be better handled by a professional. However, if you do decide to self manage, then be sure to educate yourself thoroughly about the proper handling of SMSFs to avoid any negative effects. For more information about Tax Deductions in Australia and Medical Indemnity Insurance Australia please visit our website http://www.taxforhealthprofessionals.com.au/
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