SMSF compliance: Rules and regulations for SMSFs

SMSF Compliance: Self-managed super fund regulations

With great power comes great responsibility and whilst it's true that self-managed super funds (SMSFs) have significant compliance and administrative responsibilities, partnering with professional SMSF administrators can significantly reduce the time & headspace required as well as the risk of non-compliance.

How is an SMSF regulated?

Self-managed superannuation funds are regulated by the Australian Taxation Office (ATO) and the Australian Securities and Investment Commission (ASIC).

What laws does an SMSF need to adhere to?

The overarching laws that SMSFs must comply with are the Superannuation Industry (Supervision) Act 1993 (SIS Act). The SIS Act provides a guide for SMSFs and sets out clear and specific regulations that SMSF trustees must comply with to avoid breaches and potential penalties imposed by the Australia Taxation Office (ATO).

Additionally, SMSFs must pay tax in adherence with the 'Income Tax Assessment Act 1997' and the 'Corporations Act 2001' should be considered by SMSFs with a corporate trustee structure.

What administration tasks are required to manage SMSF compliance?

Running a self-managed superannuation fund comes with a range of responsibilities and reporting requirements. This is why most SMSF trustees appoint specialist SMSF accountants or administrators, like Stake Super, to manage the administration and compliance of their funds.

Some key administrative tasks that are required to manage SMSF compliance include:

• Reconciling all SMSF transactions each financial year
• Preparing annual financial accounts and member statements
• Appointing an independent auditor to undertake an annual audit
• Preparing and lodging SMSF annual return (SAR)
• Ensuring pension calculations meet the pension standards
• Annually reviewing and updating the fund's investment strategy
• Monitoring contribution caps
• Ensuring fund investments are held under the correct ownership
• Ensuring proper and accurate records are kept
• Ensuring the fund's trust deed is kept up to date with any legislation changes
• Obtaining a market value for certain investments (e.g., property or unlisted assets)

As a full-service SMSF administrator, Stake Super supports all of the above, significantly reducing the administrative and compliance burden of having an SMSF.

Learn more: What are the benefits of an SMSF?🎓

What is the sole purpose test?

With respect to SMSFs, the sole purpose test is designed to ensure that SMSF trustees establish and manage their superannuation fund for the purpose of providing retirement benefits to members upon their retirement.

How does the sole purpose test apply to self-managed super funds?

The sole purpose test's objective is to avoid the spend of superannuation funds for personal benefit before meeting a condition of release. To be eligible for the superannuation tax concessions and maintain compliance status, the self-managed superannuation fund needs to satisfy the sole purpose test. The self-managed super fund investment strategy should also broadly outline how members' super funds will be invested to meet the sole purpose objective.

What are the penalties for SMSF non-compliance?

The ATO can impose penalties ranging in severity to SMSF trustees for non-compliance of the superannuation and taxation laws. The level of penalty imposed can depend on the seriousness and the impact of the compliance breach along with how long the breach continues unrectified.

The types of action the ATO can take include:

• Direction for SMSF trustees to undertake an education course
• Enforceable undertaking
• Direction to rectify the contravention
• Administrative penalties
• Disqualification of an SMSF trustee
• Civil and criminal penalties
• Allowing the SMSF to wind up
• Notice of non-compliance
• Freezing an SMSF's assets

The most serious SMSF breaches include illegal early access to superannuation benefits and breaching in-house asset rules.

What to do if you receive a breach notification from the ATO?

If a trustee does not complete SMSF compliance tasks and receives a notification of breach from the ATO they should start developing a plan to rectify the breach as soon as possible. They should seek professional advice or speak with their fund's auditor on how best to rectify the non-compliance if they are unsure of what to do.

This is not financial product advice, nor a recommendation that a self-managed super fund (‘SMSF’) may be suitable for you. Your personal circumstances have not been taken into account. SMSFs have different risks and features compared to traditional superannuation funds regulated by the Australian Prudential Regulation Authority (‘APRA’). Stake SMSF Pty Ltd, trading as Stake Super, is not licensed to provide financial product advice under the Corporations Act. This specifically applies to any financial products which are established if you instruct Stake Super to set up an SMSF. When you sign up to Stake Super, you are contracting with Stake SMSF Pty Ltd who will assist in the establishment and administration of an SMSF under a ‘no advice model’. You will also be referred to Stakeshop Pty Ltd to enable your trading account and bank account to be set up in order to use the Stake Website and/or App. For more information about SMSFs, see our SMSF Risks page.