Setting up a SMSF, ensure it meets the sole purpose test

Setting up a SMSF, ensure it meets the sole purpose test. Setting up your own self-managed super fund (SMSF) can be a complex task even before you seek registration with the ATO. It’s important that the SMSF be set up correctly for the sole purpose of providing retirement benefits for their members.

Once you get to the ATO registration stage, it acts as the gatekeeper and uses analytical risk models to ensure that only genuine trustees are allowed into the SMSF sector.

If you’re thinking of setting up your own self-managed super fund (SMSF), to take charge of your retirement and be able to make investment decisions, there are some important steps you have to take before you seek registration with the ATO such as choosing between individual trustees or a corporate trustee, creating the trust and trust deed, appointing trustees or directors, setting up a bank account, obtaining an electronic service address, and preparing a windup strategy.

It is a complex process with the ATO as the gatekeeper ensuring that only genuine trustees are allowed into the SMSF sector. This is achieved by conducting pre-registration checks on newly registered SMSFs and new members added to existing SMSFs, as well as maintaining the Super Fund Lookup (SFLU) which is a public register of super funds that third-party funds and employers can use to determine if they can pay rollovers or contributions to an SMSF.

The ATO uses analytical risk models that look at a number of factors and data related to new SMSF or new members to determine the risk of illegal early release of funds or non-compliance.

This consists of the trustees’ financial history and behaviour including: bankruptcy; debts owed to the ATO; outstanding lodgements; poor lodgement or payment compliance history; ability to maintain an ongoing super fund; and whether the individual has been linked to any other SMSFs of concern.

When a risk is identified during the pre-compliance check, the ATO will usually undertake further checks and interviews with the trustees involved to ensure that they are genuine in wanting to establish an SMSF and understand all the obligations and consequences of failing to comply with super laws, as well as having received adequate professional advice or have had appropriate education.

Where there is still concerns with the registration of the SMSF even after speaking to the trustees, the ATO will withhold registration and trustees will need to seek a review of the decision and addressed any concerns raised during the new registration check. In 2017-18 income year, there were around 26,000 SMSF registrations and approximately 2,100 were subject to further review. Of those reviewed, 29% had their ABN cancelled and a further 16% had their registration details withheld from SFLU.

Therefore, it is important that the SMSF be set up correctly for the sole purpose of providing retirement benefits for their members. Even at the set-up stage, it is important to look ahead for life events such as marriage, divorce, or death which may impact on an SMSF. While some of these issues may be unpleasant and a conversation involving them unwelcome, it is important to note that an SMSF is a long-term retirement vehicle and it is prudent to ensure from the beginning that there is a strategy to deal with unexpected events and wind up the SMSF if necessary.

Setting up a SMSF, ensure it meets the sole purpose test, need professional help?

Want to set up an SMSF but unsure of how to go about doing it? We can advise you on all aspects of setting up an SMSF no matter what stage of life you’re in. If you already have an SMSF and are unsure of how to deal with big life events, we can cast our experienced eye over your current fund and give you the best advice.

Hunter Partners are Accountants, Tax Agents and Financial Planners. We can assist you with all aspect of your accounting, tax and financial planning requirements, call Hunter Partners on (07) 4723-1223.