The Trouble with Self-Managed Super Funds

 

It seems that these days everybody wants to set up a Self-Managed Super Fund.

Not content with having a faceless trustee control their money, people now want the ability to invest their super in ways that they perceive will provide the best returns.

Self-Managed Super Funds are, of course, particularly attractive to small business owners who can utilise the Fund to purchase a property through which their business can operate, and use the rental from the property as income in the Fund.

However, the explosion of Self-Managed Super Funds is not without issue.

The nature of Self-Managed Super Funds and the applicable governing legislation means that quite often issues arise which are legally complicated and require the input of professionals to resolve.

Self-Managed Super Funds usually consist of one to four members who are related to each other and who work in the same business. Often they are husband and wife and children running a family business.

The classic example of a Self-Managed Super Fund dispute arises where the Fund owns a property and upon the death of one of the members, the member’s interest is left to other children who are not involved in the Fund. Such a situation might require that the property is sold to satisfy the Fund’s ability to make the payment to a nominated beneficiary, which might in turn have an adverse effect on the operation of the business and those members of the family with interest in the Fund.

Self-Managed Super Funds need to be audited annually and their operation held to the high standard set under Australian law. If the audit is not done correctly, the Fund risks being non-compliant which can have horrendous tax consequences for the members – ie Payments to the Fund might be assessed by the ATO as being assessable income in the hands of the member, in which case rather than being subject to a minimal incoming payment tax, such payments might be assessed at the usual marginal tax rate of the member. If an auditor does not pick up these issues during the annual audit, these problems could compound over years with catastrophic results.

At Mornington Legal, we have seen many issues with Self-Managed Super Funds, such as:

• Inappropriate trustees
• Expired or incomplete Binding Death Benefit Nominations
• Super Fund property not being correctly transferred into or out of a Super Fund
• Deadlock in two or four member Super Funds
• Non-compliance with tax rules

It seems that the difficulty with Self-Managed Super Funds is that they have been marketed by many professionals in a way that purveys a sense of simplicity and ease of operation. The reality is that nothing could be further from the truth. Quite often, Self-Managed Super Funds are sought by people who have no real understanding of how they work and who are wholly reliant upon professional advice in the administration of the Fund. This can make them very expensive to operate.

Conversely, if a Fund is set up by someone unfamiliar with the operation of such a fiscal entity, and who does not seek professional advice, they can easily stray into the problem territories identified above.

At Mornington Legal, we are adept at identifying and resolving problems with Self-Managed Super Funds, and are especially adept at resolving disputes between partners or beneficiaries.

If you find yourself in such a situation and need assistance or professional help, please give us a call.

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