Trustee Responsibility

When a Trustee is not solely responsible,
how does it impact Accountants and Auditors?

Two recent court cases, Cam & Bear and Ryan Wealth, each considered whether the actions of the SMSF auditor were appropriate in light of the investment activity that each SMSF undertook.

Cam & Bear saw the Fund provide money to a friend of the member to manage the SMSF investments.

Further, this close friend, via a company he owned, also acted as accountant/administrator for the SMSF. The friend’s investment company invested the fund assets in “cash and shares”. The SMSF accounts disclosed the cash assets as “Cash – LSL Holdings” in the financials. This cash asset was in fact an unsecured loan to LSL Holdings – a company owned by the friend.

Not sounding very friendly, and certainly should not have passed a “smell test”.

The SMSF auditor queried the entries but was told, via the Trustees friend (as accountant) that the Trustees were happy with the description. There was no direct communication between the SMSF auditor and the Trustee.

When the Trustee went to withdraw cash, they were unable to as LSL went into voluntary administration.

The auditor was sued for negligence, and found, after appeal, that responsibility for the losses suffered by the Fund be apportioned 90% to the auditor, and 10% to the Trustee.

The court found that the auditor was “clearly negligent” in that they did not make sufficient enquiry on the recoverability of the amounts.

Ryan Wealth again saw the auditor as being found negligent. In this case, the Trustee received financial advice from a licensed adviser. The adviser placed Fund monies into unsecured loans. Again, over a period of time a number of entities related to the adviser went into liquidation, with the ultimate result being the plaintiff suffered significant financial loss.

In both cases, the Trustees agreed to invest in private entities/loans with little or no understanding of the nature of the investments and provided significant reliance on others with respect to the investments.

It can be concluded that the auditors in each case did not make sufficient enquiry directly with the Trustees and it would appear they did not elevate their level of risk with respect to the investments.

Although it appears clear that in each case the SMSF was duped out of monies, this does not limit the culpability for loss to the fraudulent party – peripheral parties such as accountants and auditors are also capable of being assigned blame by the courts.

While these two cases highlight that auditors face a heightened level of risk, the same inference can be made of accountants and advisers, should they become aware of arrangements that don’t pass the “smell test”.

Practical Implementation – tips and traps:

• Auditors and advisers should consider the appropriateness of their engagements.
• Where assets are unable to be easily valued or verified, a heightened level of risk should be applied.
• Trustees should be made aware of the uncertainty of peculiar assets (be it recoverability, value or returns) and advisers/auditors should document these discussions with Trustees.
• The mere fact that a Trustee has engaged a financial adviser is not sufficient to rely on – the courts place emphasis on “direct” contact with a Trustee.

Do you Really Need $1m to Start a SMSF?

TAG financial planning

Unless you’re a millionaire, is a SMSF worth it for you?

There has been a lot of talk in the media recently, driven largely by the uncovering’s of the Royal Commission as well as the Productivity Commission findings, surrounding the appropriateness of Self-Managed Funds.

Do you need $1m in super to have an SMSF?

If you believe the Productivity Commission recommendations, then yes. But that would also have you believe that the data they used as part of their findings is consistent across sectors.

SMSF data, provided by the ATO, included items such as contributions tax and insurance in its net earnings figures, while APRA data did not.

If there is to be an accurate comparison across the superannuation sector, then consistent data must be used before providing statements as controversial as this.

A minimum account balance of $1,000,000 would also mean that far more superannuation wealth will be held by retail and industry funds, whose performances in acting in the interests of their members have globally been challenged via the findings throughout the ongoing Royal Commission into the sector.

So why would someone start a fund with a lower balance?

We note ASIC’s long held stance that an SMSF should have a minimum balance of at least $200,000 and would agree that, from a cost perspective, the costs to obtain advice, implement an establishment, and maintain the fund on an ongoing basis, would be higher under circumstances where a lower balance exists.

However, costs are not the only factor at play with our clients.

Many clients may have a contribution plan in place, or they may aspire to acquire direct property via their superannuation.

They may want to undertake a Limited Recourse Borrowing or hold a commercial property to lease to their business.

Many clients like the control that an SMSF provides them over their retirement wealth, and the additional asset types and classes that they can invest in.

These factors are important to consider, rather than placing a roadblock in front of individuals aspiring to grow their wealth.

As advisers, we must always act in our client’s best interests and by providing the full variety of options, allow our clients to make informed decisions.

Practical Implementation – tips and traps

• The amount available in superannuation should not be the only consideration when deciding whether a SMSF will be right for your clients. Costs do form part of the consideration but it is far from the only consideration.
• As well as the costs involved in maintaining a SMSF, other considerations, such as flexibility, wealth accumulation and retirement planning should also form part of the decision making process. All of these factors combined, will help your client’s determine what is the right structure for them.
• So that our clients can make an informed decision, it is important that the information they are considering is comparable. If considering what costs are involved in running an SMSF compared to leaving their superannuation in a retail or industry fund, it is vital that all costs are compared.

Disclaimer: The information contained in this document is general in nature only. Professional advice should be sought before acting on any aspect of this document. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees . TAG Financial Services Pty Ltd (ABN 67 075 374 686).

Do More Members in a Fund Mean More Opportunities?

The Federal Government, on 27 April and again on Budget night, announced a proposed increase to the maximum number of members permitted in an SMSF and small APRA fund from 4 to 6.  This proposal will take effect from 1 July 2019, if legislated.


This is an exciting development as it provides advisers and clients enhanced opportunities to use their SMSF as a broader family retirement vehicle.  Planning opportunities for live inheritances with this increased membership will help clients grow the retirement wealth of family members, and in addition provide support to SMSFs with lumpy assets, to counter requirements to pay out a death benefit.

Take the following example:

Paul and Mary have a SMSF.  They each have $2 million in the fund and their SMSF holds property worth $3.5 million and cash of $500,000.

They have 4 children, who each will have a balance of $100,000 upon Paul’s death.  Paul’s income stream is reversionary to Mary and to manage the transfer balance cap, Mary will need to withdraw $400,000 as a lump sum from the fund.  However, doing so will place increased cash flow stress on the SMSF,  to meet the pension requirements Mary has annually.

By admitting the 4 children as fund members, their rollovers can be used to fund the death benefit lump sum required.  The children could also ensure their super contributions are paid to the SMSF and provide additional cash flow buffer for Mary’s pension payments annually.  Any excess pension payments by Mary, subject to total super balances, could be used as non-concessional contributions for the children, which can also assist to ensuring the property asset can remain in super for future generations.

Similar to the above example, parents may consider live inheritances by assisting children with concessional contributions, with the removal of the 10% rule, and still have greater control over how these funds are invested.

For those looking to take advantage of the increase to 6 members, corporate trustees are likely to become even more attractive given extra signatories required, for administrative ease, and also to counter trustee penalty provision, although extremely rare.  A lot of control needs to be considered as mum and dad may be out voted by their kids.

While the devil is always in the detail, advisers should open the dialogue with clients who may be able to take advantage of these new rules.  Planning in advance will be crucial to creating the most proactive response possible.


Disclaimer: The information contained in this document is general in nature only.  Professional advice should be sought before acting on any aspect of this document.  Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees . TAG Financial Services Pty Ltd (ABN 67 075 374 686).


Federal Budget

Happy Days for Super in the Budget

Treasurer, Scott Morrison, delivered his third Federal Budget on 8 May 2018 and the third budget of the Turnbull government, which is the best budget for super for years.


Below is our summary of the Federal Budget superannuation essentials.  



No. of Members in a SMSF

Effective 1 July 2019, the maximum number of members within SMSF will be increased from four to six, which will allow for greater succession planning.


SMSF Audits

Effective 1 July 2019, for SMSFs with a good compliance record, the requirement for annual audits will be changed to a three-yearly requirement. To be eligible, SMSFs need to have a clear audit history and a record of lodging returns on time for three consecutive years.


Work Test Exemption for Retirees

Effective 1 July 2019, those aged 65 – 74 years will not be required to satisfy the work test in order to make personal contributions to superannuation in the first year that they would otherwise not satisfy the test. To qualify, the individual must also have a balance of less than $300,000.


Superannuation Guarantee (SG) opt-out

Effective July 2018, individuals receiving combined income of greater than $263,157 from multiple employers can choose to nominate the wages from certain employers not be subject to compulsory SG, to avoid excess Contribution tax and shortfall charges (SG > $25,000) and can also negotiate to receive the SG from those employers as additional income and taxed at their marginal tax rate.   Note: that a SG ‘maximum contribution base’ of $54,030 per quarter (annual equivalent of $216,120) applies for 2018-19. An employer is not required to provide the minimum 9.5% SG on its payments to an employee above the maximum contribution base.


Measures to Limit the Erosion of Member Balances

Effective 1 July 2019, there will be:

  • 3% annual cap on passive fees on low balance accounts (less than $6,000);
  • a ban on exit fees;
  • changes to insurance arrangements for low balance accounts, members under 25 or accounts that have been inactive for 13 months; and
  • a requirement to transfer all low balance inactive superannuation accounts to the ATO.


Testamentary Trusts

Effective 1 July 2019, an integrity measure for minors receiving income from testamentary trusts will be introduced. The concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets. Income received by minors from testamentary trusts is currently taxed at normal adult tax rates rather than the higher tax rates that normally apply to minors.


Single Touch Payroll Reporting

Effective 1 July 2018, employers with 20 or more employees will report payments such as salaries and wages, pay as you go (PAYG) withholding and superannuation information from their payroll solution each time an employee is paid. For employers with less than 20 employee, this will be introduced from 1 July 2019.


Deduction for Personal Contributions – Notice of Intention (NOI)

Effective 1 July 2018: Individuals claiming deductions for personal super contributions need to fill out the NOI form available on the ATO website and forward the form to the respective super fund

  1. Alert on the tax return to tick the NOI box next to the personal contribution claim. If the NOI form is not filled out, the ATO may deny the personal contribution tax deduction.
  2. SMSFs not taxing the personal contributions at 15%, but individuals claiming a deduction in their personal tax return, meaning no tax is paid at all.
  3. ATO to provide guidance on how to comply if NOI not completed and forwarded to respective super fund.


More Information

For all the Federal Budget’s key initiatives, visit the Federal Government budget website at


Disclaimer: The information contained in this document is general in nature only.  Professional advice should be sought before acting on any aspect of this document.  Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees . TAG Financial Services Pty Ltd (ABN 67 075 374 686).

Effective Use of Reserves

Why is the ATO concerned?      

The ATO recently outlined their concerns in the SMSF Regulator’s Bulletin SMSFRB 2018/1, with respect of the use of reserves by Self-Managed Superannuation Funds.

Why is the ATO concerned?

Essentially, the ATO is concerned that SMSFs will use reserves, such as investment reserves, to artificially suppress a member’s balance to ensure they are under the Transfer Balance Cap or Total Superannuation Balance.

Using a reserve to bring a member’s balance below a Total Superannuation Balance threshold may artificially allow a member to make a non-concessional contribution, or a catch up concessional contribution.



Paul has a superannuation balance of $1.55m. His fund has $60,000 in earnings for the 2017/18 year. If Paul’s fund allocates this amount to Paul, then his balance will be above $1.6m as at 1 July 2018 and he will not be able to make a non-concessional contribution in the 2018/19 financial year.

By allocating to an income reserve, Paul’s total superannuation balance will remain below $1.6 million at 30 June 2018 and he would then become eligible to make a $100,000 non-concessional contribution after 1 July 2018.

Alternatively, Paul may be looking to commence an income stream and by allocating income to a reserve, Paul will be able to ensure his entire balance is within his Transfer Balance Account Limit.  It is these sorts of arrangements that concern the ATO.

‘Legacy’ Reserves

Many funds currently hold reserves because of actuarial calculations from complying pensions held by fund members.

Up until this point for these funds, Trustees have been able to allocate amounts from reserves to eligible members.  This can be done by either allocating an amount equal to 5% or less of all members’ account balances in the fund or be treated as concessional contributions for the recipient member. Note that the 5% allocation method does not carry the standard work test, or upper age limit restrictions, as this is not treated as a contribution.  Furthermore, the 5% allocation can increase a member’s account-based pension balance (this is the only way to increase an existing pension account).

In the Bulletin, the ATO have advised that they are planning to remove the ability for an allocation to be made to an existing account-based pension, under the 5% allocation method.  The result of this will be that it will not only take a much longer period to allocate amounts out of the reserve but in the longer term, if all members have died, the amount in the reserve essentially becomes forfeited money, as it does not belong to any members and therefore cannot be allocated to anyone.  It is forever ‘locked’ in the superannuation environment.


Michael and Rachel have a SMSF.  They both have a lifetime complying pension and an account-based pension in the fund.  Their account balances at 30 June 2017 are as follows:

Michael – complying pension


Rachel – complying pension




Michael – account-based pension


Rachel – account-based pension   


Total Fund Balance


Under the previous rules prior to the announced changes in the Bulletin, Michael and Rachel would have had the ability to allocate $25,000 each from the reserve (and have this treated as a concessional contribution) or allocate $211,500 from the reserve (under the 5% allocation method).

Under the 5% allocation method, the $211,500 would have been allocated as follows:

Michael – complying pension


Rachel – complying pension


Michael – account-based pension


Rachel – account-based pension   


Total Allocation from Reserve  


Under the proposed changes, only $151,500 would be able to be allocated (i.e. the amounts to the account-based pension would not be able to be allocated).  Furthermore, if the complying pensions were commuted, no amounts would be able to be allocated, meaning an amount would remain in the reserve indefinitely. 


Practical Implementation – Tips and Traps:

  • The ATO has confirmed they will not apply compliance resources to reviewarrangements that have taken place before 1 July 2017, where these arrangements are compliant with SIS section 115.
  • Use of a reserve must be for a clear purpose, which is harder to identify in an SMSF.
  • Creating new reserves will likely attract ATO scrutiny.
  • How to effectively deal with ‘legacy’ reserves, or reserves that arise from a legacy styled income stream is vital as amounts allocated from a reserve may give rise to a concessional contribution for the fund’s member/s.
  • Allocations from reserves may impact client’s Transfer Balance Caps and Total Superannuation Balances with clear upper limits and restrictions imposed on these thresholds, it is vital advisers understand the appropriate order of events, and the flow on consequences, before making recommendations to clients.
  • Advisers should be careful to consider the interactions between a client’s age, income, spending and future goals and objectives before making recommendations that commit clients down a certain path.

If considering commuting lifetime pensions, advisers should careful consider any Centrelink implications, as benefits may be lost that cannot be recovered.


Final Deadlines Looming

Reminder 1 July 2018 is fast approaching. This is the final date by which all SMSFs must have lodged Transfer Balance Account Reports for fund members. In addition, the ATO’s nationwide lodgement extension for SMSF 2017 annual returns mean that the last chance to apply CGT Relief is fast approaching.

Disclaimer: The information contained in this document is general in nature only.  Professional advice should be sought before acting on any aspect of this document.  Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees . TAG Financial Services Pty Ltd (ABN 67 075 374 686).