The importance of an SMSF health check

Insights for Individuals

There are few industries that have been through the level of legislative change over the past 15 years than the SMSF industry.

SMSF Health CheckChanging contribution levels, pension rules and limits, estate planning case law and investment changes mean that an SMSF with documents that haven’t been reviewed in the last 10 years is likely out of date. And unfortunately, we often only review these documents when something happens – which can sometimes be too late.

Below are just a few of the documents that our SMSF health check will review, to help highlight the issues before they become a problem.

The Deed

This is the all-powerful list of rules that actually says what you can and can’t do in your SMSF – which sometimes might not comply with the current legislation. Good SMSF deeds will always have a clause that refers back to the current legislation, but some still have prohibitions on things that are allowed now. They will also cover the process for removing members, splitting balances, and how to resolve conflicts, so if this is old and outdated it will make a difficult process more complicated.

Finally, there are sometimes different parties mentioned in the deed that may not exist, or be relevant anymore. The trend in the 90s to have an employer sponsor attached to your SMSF can lead to real problems now if your deed requires that entity to approve things your SMSF is doing.

Company Constitution

SMSF Health CheckThe SMSF Deed isn’t the only all-powerful rule book - the company constitution for a SMSF trustee is almost as important, and almost always overlooked. While the members of an SMSF are bound by SMSF law, the directors of a trustee company will need to consider the Corporations Act. This is especially important in conflict resolution and decision-making matters – just because your Deed says something may not make it ok.

Financial Statements

Given each SMSF is audited, you might wonder what hidden traps the financial statements may have lying in them that a health check might uncover. However, a quick review of the financials will reveal formation expenses that are incorrectly being carried as an asset, or a deferred tax liability that might protect from hidden capital gains. Taking the financial statements at face value could mean getting less in a settlement than was anticipated.

Investment Strategy

TSMSF Health Checkhe need to have a valid, complying investment strategy has been around since the dawn of SMSF time, but the ATO interpretation of what should be included, and what is meant by some of the terms has been updated even in the last 12 months. A failure to either have a valid strategy or to be investing outside of the strategy can expose the trustees to the risk of audit breaches and potential trustee penalties.

Undertaking an SMSF health check prior to finalising any settlement will mean you are aware of potential pitfalls before things are signed off, instead of trying to work around them after. The above are just a few of the legal documents required for SMSFs, and only some of the risks attached to getting them wrong. Our SMSF specialist team can provide your clients with an SMSF health check, to hopefully make one thing in a family law settlement a little easier.


HOW CAN RSM HELP?

If you have any questions regarding an SMSF health check, get in touch with one of our trusted advisers today.