SMSF loans to members skyrocket

Self-managed super funds (SMSFs) appear to have heeded the Australian Taxation Office’s (ATO’s) warnings about compliance, according to new research by Partners Superannuation Services.

Breaches of fund rules have dropped by over 4 per cent from 11.3 per cent in 2008 to 7.2 per cent in 2009, according to research based on audits of over 500 funds.

“Clearly trustees are making a much greater effort to truly understand what is expected of them in their roles,” said Partners Superannuation Services director, Martin Murden.

As many as 44 per cent those that breached SMSF legislation during 2009 either took personal loans for their own requirements or made them to other members. This was significantly up from 2008, when 25 per cent of SMSF breaches related to the provision of personal loans to members.

“My suspicion is that these stem from the difficult state of the economy over the past year and the need to access additional funds,” Murden said.

He said while the majority of these breaches related to relatively small amounts of money, and while repayment often occurred before the end of the financial year, they were nonetheless breaches.

The second biggest transgression, at 22 per cent, was SMSFs not following the in-house assets rule. However, this figure was well down on 2008 when half of the breaches were due to the failure to follow the in-house assets rule.

The remaining 34 per cent of contraventions were generally a result of fund borrowings being in breach of legislation, and not all trustees being members (and not all members being trustees).

Funds that breach legislation could be subjected to penalties, which include being declared non-compliant and being disqualified personally from the role of SMSF trustee.

“Being declared non-compliant would also result in the fund’s taxation rate increasing from 15 to 46.5 per cent. As far as the ATO is concerned, super funds receive very attractive tax concessions and if they want to retain these benefits, they need to toe the line,” Murden said.

The research also found that the average fund has increased $170,000 in value over the previous year; while the major asset allocation change has seen a 6 per cent increase in property.

There has also been a significant increase in the number of funds paying pension to members — jumping from 14 to 23 per cent in a year — which could be a result of more people commencing a Transition to Retirement Income Stream (TRIS).