Self-managed superannuation funds can be wonderful vehicles for building wealth, but they also come with serious compliance obligations.
For example, there are strict rules your SMSF must follow when adding or removing a trustee. If you don’t, the Australian Taxation Office (ATO) could, theoretically, impose civil or even criminal penalties – although this would be very much a last resort.
That’s why you need to take care to avoid these six traps when changing SMSF trustees.
1. Failing to notify the ATO within 28 days when a trustee is appointed
As a trustee of your SMSF, you must notify the ATO within 28 days if your fund changes its individual trustees or the directors of its corporate trustee.
Some people believe you can wait until lodging your SMSF annual return to notify the ATO – but that’s incorrect. You must notify the ATO within 28 days.
2. Failing to properly manage the trustee declaration paperwork
New trustees must consent in writing to their appointment and – within 21 days – sign the trustee declaration confirming they understand their responsibilities.
These documents must be retained for the life of the SMSF, and then for 10 years after the SMSF is wound up.
3. Appointing a disqualified person
Anyone you appoint as a trustee must be eligible to fulfil that role. That means they can’t have ‘disqualified’ status, which means they must not:
- be currently bankrupt
- have been convicted of a ‘dishonest offence’ (in Australia or overseas)
- have been issued with a civil penalty order
- have been disqualified by the ATO or APRA
4. Appointing somebody who doesn’t understand their responsibilities
Furthermore, anybody you appoint as a trustee must understand their new responsibilities.
All trustees are equally responsible for managing the SMSF and are legally responsible for all the fund’s decisions, even if they’re not personally involved in making those decisions.
According to the ATO, trustees have a legal obligation to:
- Understand and fulfil their responsibilities
- Ensure the SMSF complies with all relevant laws
- Act honestly
- Act in the best interests of all fund members
- Manage the SMSF separately from their own personal super affairs
5. Appointing a trustee at the wrong time
When you appoint a new trustee to your SMSF, the ATO will conduct a risk assessment. During this process – which may take weeks – the status of your SMSF will change from ‘complying’ to ‘regulation details withheld’.
Employers and other super funds will only transfer money to ‘complying’ SMSFs, which means they won’t make deposits to your fund during the risk assessment period. So it’s important you don’t trigger the process if your SMSF urgently needs to receive a deposit.
6. Failing to restructure the fund within six months when a trustee resigns
If someone resigns as a trustee, your SMSF has six months to restructure itself. That means it has six months to transfer the ex-trustee’s retirement savings out of the SMSF (generally to another super fund).
Rhiannon Leonard is a property lawyer at SMSF Conveyancer.
Buying or renovating an SMSF property? Keep on the right side of the law by working with an expert SMSF conveyancer. For professional SMSF conveyancer services, call us on 03 9070 9810 or request a quote.