Non compliance of SMSF - ignore the rules at your peril

Posted 2 Oct '20

Non compliance of SMSF - ignore the rules at your peril

By Vicky Richards

Check the rules before you act.

Running your own self-managed superannuation fund can deliver some extremely valuable benefits including control over how your super is invested. However, together with a long list of benefits comes a very strict set of rules the SMSF needs to comply with in order to receive concessional tax treatment.

A significant breach of these rules, which are administered by the tax office, can result in your fund being declared non-complying. Once a fund is found to be non-compliant it loses access to the concessional 15% rate of tax and instead is taxed at the top marginal rate of 45%.

An additional penalty is applied in the year in which a fund becomes non-complying. The market value of the assets of the fund, less any undeducted contributions, are subjected to a 45% penalty tax. 

This effectively recoups all previously allowed tax concessions even during the periods the fund was complying.

To avoid this situation a basic rule of thumb for a hassle-free life when running an SMSF is to keep its operations completely separate from your personal and business affairs. The sole purpose of an SMSF is to provide benefits for members in retirement. An SMSF should not be used to invest in, or to loan monies to members or related parties. 

Our specialist SMSF team is available to answer any questions you may have in regards to the compliance of an investment or transaction you are considering. If a non-arm’s length party is involved in any way, please ensure you phone WDF Professional for further advice.