According to a survey of 801 SMSF trustees, as well as 535 individuals without a SMSF, although women account for 47 per cent of Australian SMSF trustees, they are less confident than men in managing their SMSF (83 per cent to 62 per cent), and less assured of their understanding across the asset classes.
The research was developed and conducted by Galaxy Research on behalf of the Commonwealth Bank and the SMSF Association. The respondents were distributed throughout Australia, including both capital city and non-capital city areas.
Marcus Evans, Head of SMSF Customers, Commonwealth Bank, said the report clearly highlighted that SMSF trustees are not all the same and the market is comprised of many different and diverse types of investors with their own unique needs.
“Every SMSF is different, from the types of investments held to how a fund is managed, and these differences have not been well understood historically. This research also shows that there is still a real gender divide for trustees when it comes to confidence and knowledge.
“Given that women account for nearly half of all SMSF members, more must be done to better support and empower female trustees. This is also true when it comes to funds with joint-trustees, with major life events such as a divorce leaving many female trustees without the confidence to manage what is many individuals biggest investment,” Mr Evans said.
What types of mistakes can SMSF Trustees make?
The Australian Taxation Office (ATO) regularly reports on the types of contraventions (mistakes) that SMSF Trustees – male and female – make. Three significant ones include providing a loan to members, having in-house assets and breaching the sole purpose test.
Joel Curry, Director of TriSuper Auditors, sheds some light on each of these mistakes.
Loan to member/financial assistance
“Unfortunately it is not uncommon to come across SMSF’s loaning monies to members,” says Joel.
“In some cases it is the result of an honest mistake. This often occurs where a business owner has multiple accounts linked to an internet banking facility and erroneously selects the SMSF account to pay a business expense or picks up the wrong cheque book.
“Worryingly, some trustees still see the SMSF as their own personal bank account and a cheap, easy form of finance. We have seen cases where money is borrowed on 1 July, repaid on 30 June then lent again the next day. Both occurrences will usually require the lodgement of an auditor contravention report, however the ATO will likely be less lenient with the deliberate, repeated breach.”
According to Joel, investments in private companies and unit trust schemes raise immediate red flags during the audit process for breaches of the in-house asset rules.
“Many Trustees are unaware of what constitutes an in-house asset and how such investments get caught where the Fund is deemed to control or have significant influence in its running,” he says.
Complications can also arise when once non in-house investments undergo changes in underlying ownership or change business operations. They can quickly change status to be in breach.
“Once in breach, we find that Trustees are unaware of their obligations and processes to be followed for correction,” says Joel.
“Commonly these types of investments are illiquid in nature placing further time pressure on trustees. In our experience, the ATO will be lenient with Trustees who take reasonable steps to correct breaches as soon as practically possible.”
Sole Purpose Test
Breaching the sole purpose test is generally a by-product of breaching another rule, such as the in-house assets rule or loan to member as outlined above.
“It’s all about the trustees acting in a way so the members do not get a benefit from their super investment till meeting a condition of release,” says Joel.
“The majority of breaches are clear cut such as leasing a commercial property to a related part at below market value.
“However how do you judge whether a member of a fund gains personal benefit from purchasing a rare coin collection? Was it purchased for its potential gain or viewing pleasure? Of course this has now been specifically regulated, however subjective situations still arise. The ATO often applies the “what would a reasonable trustee do” test which we commonly call the “smell” test.”
When life gets in the way
It’s not always about mistakes that we make; sometimes problems arise that are outside our control. According to the Commonwealth Bank/SMSF Association survey more than four in ten SMSF trustees (42 per cent) have had an event occur in their life, including loss of employment, a separation/divorce, or death of co-trustee, since starting their SMSF that could have significant implications for the management of their super.
In the event of divorce or separation resulting in a partner ceasing to be a trustee, only half of SMSF members (49 per cent) believe they would be very confident they have sufficient knowledge to take sole responsibility for managing their investments.