Editorial - Superannuation e-news November 2007

SMSF trustees have an important responsibility to carry out their duties to safeguard the interests of members' retirement savings. In particular they must meet the sole purpose test. This is a fundamental principle -the holy grail of SMSF trusteeship- and one that our readership would be only too well aware of.

Super e-news and other publications have highlighted the nature of trustees' obligations in managing the affairs of their funds. A condition of receiving special tax concessions is that superannuation savings be used primarily for retirement benefits. Any attempt to seek early access either directly or through the actions of unscrupulous intermediaries must be avoided. The Tax Office has been at pains to remind trustees of their legal duties in this regard in the past and a couple of years ago widely circulated a booklet "DIY Super, It's your money.......but not yet!" reminding trustees of their responsibilities.

Consequently we were surprised when the Federal Court recently found against the trustees of a SMSF who were fined $30,000 and ordered to pay costs of $32,500 for breaching what appears to be the sole purpose test. The trustees sold a property belonging to their fund and used the proceeds totalling less than $150,000 for a private purpose, in this case to pay a debt. The funds were accessed prior to a member meeting a condition of release and the court also found the contravention to be deliberate. The trustees' action had clearly stripped it of its assets. Given the extensive recent coverage of trustee responsibilities the action of the trustees seems bizarre at best.

Whilst the Tax Office has previously sought the co-operation of trustees through what was a mentor like relationship, over time this has now become more business like and a formal compliance role is now indicative of the relationship. We expect it will inevitably lead to an increase in Tax Office audits which in turn may lead to a risk of increased prosecutions of trustees not prepared to toe the line! The substantial increase in staff numbers earmarked to deal with SMSF compliance is also indicative of a more robust approach that is foreshadowed.

From 1 July 2007, a trustee declaration statement for new SMSF trustees has also become necessary. It places the onus on new trustees to sign off on certain bench marks in relation to their responsibilities and obligations giving them less opportunity to plead ignorance in the future.

Our sense of trustee behaviour is that the overwhelming majority are diligent in the extreme; nevertheless this prosecution is a wake-up call for any who seek to tempt fate by cutting corners!