New SMSF trustees - a matter of knowledge

The Australian Taxation Office still has plenty of concerns about the level of superannuation knowledge among new SMSF trustees - and with good reason.

The ATO's 2008-09 compliance program reports that it had contacted last year more than 10% of the new SMSF trustees, asking questions to reveal their knowledge, or lack of it, about superannuation. This was a big exercise considering that 33,000 new funds were established in 2007-08 alone.

On one hand, the ATO found that most new trustees contacted had "sufficient basic knowledge" of the core rules and obligations applying to them. However, the tax office also found that "significant minority" did not appear to understand the superannuation sole purpose test and were unaware of the restrictions on the types of assets their funds could acquire from related parties.

(The ATO had earlier released the initial findings of its survey into the knowledge of new trustees, and these have been discussed in Smart Investing.)

The fact that a significant minority of trustees did not even understand the sole purpose test is a matter of considerable concern. Without doubt, the sole purpose test is the most fundamental rule applying to superannuation. As every SMSF trustee and any member of a super fund should know, superannuation funds must be maintained with the core purpose of providing for the members' retirement or for their death benefits - otherwise the sole purpose test is breached.

The sole purpose test goes to the heart of why superannuation exists and why it is concessionally taxed.

Again as pointed out in its 2008-09 compliance program, the ATO has found that some SMSF auditors have difficulty in identifying contraventions of superannuation law by SMSF trustees. And the regulator is giving more attention to improving auditor knowledge.

As part of this increased focus on SMSF auditors, the ATO this week released a checklist for auditors, as a guide only to the issues that should be covered during an annual fund audit. The checklist - called Auditing a self-managed super fund - is in an impressive, easy-to-read format.

Although the publication is directed at fund auditors, it would be invaluable reading for all SMSF trustees. It not only provides simple explanations but puts trustees one step ahead by knowing more about the sorts of issues that their fund auditors may raise with them during a fund audit. See: ato.gov.au.