End-Of-Year Checklist For Self-Managed Super Funds

Not surprisingly, much attention has been paid to what self-managed superannuation funds (SMSFs), trustees need to do in the lead up to the super changes that will largely take effect on July 1. It is absolutely appropriate to focus on these matters, given the scale and complexity of the reforms and the benefits (such as capital gains tax relief) that can be obtained if dealt with in a timely manner.

But it's also important to remember that July 1 brings with it another important event – the beginning of a new financial year. For SMSF trustees it's important to ensure you don't lose focus on the other requirements that come up each year. Some of the important considerations are as follows.

1. Have trustees undertaken a review of their investment strategy? Legislation requires that investment strategies are reviewed on a regular basis and many professional advisers would recommend this occurs at least every 12 months. When undertaking the review, it doesn't mean that you need to change the current investments, but you should check to see if market movements have resulted in the fund being overweight, or underweight, a particular area which could lead to a higher level of investment risk than the trustees prefer.

2. Have the trustees considered the insurance needs of all the members? As a result of a previous legislative change, trustees are formally required to address this issue as part of the regular review of the SMSF's investment strategy. Again, it doesn't mean existing insurance arrangements need to change, but the trustees should give appropriate consideration to insurance and document why the current arrangements are appropriate.

3. If there is any debt (or limited recourse borrowing arrangements) in the fund, has the fund been making the regular required repayments of principal and interest on those loans for the year? The Tax Office expects to see these repayments occurring on a regular basis.

4. If the SMSF has any investments in related parties (companies and trusts) or leased assets (other than commercial property) to related parties, then it's necessary to check that the fund has remained within the allowable 5 per cent limit for these types of investments, known as "in house assets".

5. Trustees should consider when the trust deed for the SMSF was last reviewed to ensure it is current with existing super legislation and provides the required flexibility. While the upcoming changes to super on July 1 do not generally require an SMSF to have its deed updated, trustees should consider when the deed was last reviewed and seek legal advice around any potential need to update. An example where an update could prove beneficial is if the existing deed does not appropriately cater for members to establish reversionary pension accounts, where the member can, upon their passing, compel existing trustees to pay their benefits to intended beneficiaries in the form of a pension.

6. Can you locate all the records that are necessary for the accounts of the fund to be drawn up and tax returns completed? While it may be a number of months before these need to be formally completed, having a good system in place to retain and track these costs can save time (and angst) in the future.

7. If there are members in pension phase, it can be a good time to start approximating what their minimum payments will be for the next 12 months and start planning whether any additional withdrawals will come from pension, or will instead (if available) come from accumulation accounts.

Of course, there are a number of other issues trustees need to consider this financial year, such as how to adjust pensions and claim possible capital gains tax relief as a result of the upcoming super reforms. As with any year, the best way to approach this is with proper planning so you don't leave it until the last minute. SMSF trustees who approach their fund on a pure "DIY" basis have often struggled with these issues, and will likely find this year more challenging than ever.

Bryan Ashenden

Financial Review

23 May 2017

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