There are a number of regulatory changes that apply from today (7 August 2012) that may impact your SMSF. These changes are in regards to insurance, investment strategies, keeping investments separate and in the correct name and valuation of assets. The following is a simplified explanation of these changes and how they impact you as trustees of your SMSF.
As part of the required investment strategy of a SMSF, insurance must now be considered.
Impact on you:
In many cases we will simply need to insert an additional paragraph into your SMSF investment strategy which covers what (if any) insurance has been put in place by the trustees for the members. For SMSF members who are retired and drawing a pension, life and total permanent disability (TPD) insurance is either unnecessary or unaffordable – especially when there are sufficient assets in the SMSF to provide for the members and their dependants in the case of a death or disablement.
For all SMSF members still in the wealth accumulation phase, then life and TPD insurance is absolutely essential and needs to be formally reviewed at least every two to three years. We highly recommend that you contact us so we can refer you to one of our financial advisers that specialise in insurance (if you have not done so already).
If you would like us to prepare an updated investment strategy document for your SMSF, please click here to complete the SMSF Investment Strategy Questionnaire.
Trustees must regularly review their investment strategy.
Impact on you:
Minimal. You review and sign off on your SMSF investment strategy each year upon completion of your accounts – no additional changes required.
Keeping Assets Separate:
SMSF assets must be kept separate from those assets owned by the trustees or an associated employer.
Impact on you:
Minimal. As part of the completion of your accounts by Superfund Partners, and the annual independent audit, all investments are checked to ensure they are in the correct name. However, we always recommend that all SMSFs utilise a special purpose trustee company to ensure there is absolutely no confusion between assets of your SMSF and your personal assets and investments. Please contact us if you would like to discuss the benefits of using a special purpose SMSF trustee company.
Valuation of Assets:
All SMSF assets are required to be valued at market value.
Impact on you:
For most SMSF trustees, especially those with listed investments such as shares and managed funds, there will be zero impact as your investment values are updated daily. However for SMSFs that hold unlisted investments and property, there may be more work to be done. Please refer to our previous article ‘When to revalue SMSF property’ for further information on revaluing your SMSF property investments.
If your SMSF has investments in private companies, unlisted unit trusts or commercial property please expect us to chase you for all necessary information we need (and our independent auditors need) so we can prove that we have valued your SMSF investments correctly at market value. The information required may be the same or more than what was requested in previous years. We make no apologies for this – we need to ensure your SMSF retains its complying fund status and all the tax benefits that come with it!
In addition to the above changes, there are a number of other important regulatory issues you currently need to be aware of:
- The ATO is currently focussing on SMSFs that have investments in related party unit trusts and SMSFs that lease commercial property to a related party (such as your business operating entity). We have seen a significant increase in the number of ATO audits around these areas – the ATO officers we speak to have also told us they are putting together a register of all SMSFs that have an investment in a related unit trust. We suggest all SMSFs – especially those with unit trust and property investments – take out a specialist audit protection insurance policy which will cover any costs relating to an ATO audit or investigation. Please visit Self Super Insurance to obtain a quote (it should be less than $200) and obtain a policy for your SMSF.
- Related to the previous issue around the increase in ATO audit activity, it is essential that all SMSFs with property investments have a legally binding lease in place – even if the property is leased to a related party or business at market value. The ATO has highlighted the fact that is no lease is in place, the investment will be considered an in-house asset and the SMSF will generally become non-compliant – all because of the absence of a single document!
- This means all SMSFs with direct property investments (residential or commercial property) will need to provide us with a copy of a current, legally binding lease agreement. The only exception is where the property is residential and managed by a licensed real estate agent.
- Other documentation that will be required is a valuation (every three years), an appraisal of the market rental rate from an independent party – such as an agent (every three years) and a title search (which we can easily obtain on your behalf)
- If you would like us to send you a check-list of exactly what information we will need for your SMSF, please contact us.
- The change that was meant to come into effect on the 1st of July 2012 which banned off-market transfers of shares into (and out of) a SMSF has been delayed to at least the 1st of July 2013. No legislation has been has been enacted for this change. For more information check our previous article here.
- All SMSFs that hold artwork and collectibles now need to comply with a number of new rules. These rules will apply to any NEW collectibles / artwork purchased after 1 July 2011 or to collectibles held prior to that date from 1 July 2016. The new requirements are serious, and in many cases the best solution would be to transfer the assets out of the SMSF or have a member of the SMSF buy them at market value. The changes basically include:
- Artwork / collectibles cannot be stored at the home address of the members
- The must be independently appraised at least every three years
- The items must be separately insured with the policy in the name of the SMSF
- Any transfer / sale of the assets to the members of the fund must be accompanied by an independent valuation
If you have any questions about the above please do not hesitate to contact us or ask a question in the comment box below.