Don’t let your SMSF get caught by the ATO

SMSF trustees are responsible for managing their SMSFs and ensuring the funds comply with relevant superannuation regulations. There are few things that are easily ignored by trustees, but those things are the key areas the ATO is focusing on.

1.Travel expenses. As per the superannuation law, the sole purpose of SMSFs is to provide superannuation benefits to members when they meet the conditions of release (e.g. retire, terminal illness, etc.). Also, according to the section 65 of the SIS Act, SMSFs cannot lend money or provide financial assistances to members or their relatives. However, some trustees let the SMSFs pay for trips for both property investment (e.g. inspecting rental properties in SMSFs) purposes and private purposes. Then they claim the whole travel expenses in the SMSFs’ tax returns, which is concerned by the ATO.


John and Jane are trustees of their SMSF which owns a property in Sydney. The SMSF paid for a four-day trip to Sydney, where John and Jane spent most of the time visiting places of interest. They only inspected the property on the way they returned to the hotel. In this case, the SMSF should not have paid for the travel expenses and the deductibility of the expense is also denied. The super law was breached when the SMSF paid for the private expenses of trustees.

  1. Late lodgement. The ATO always keep an eye on the SMSFs which lodge the tax return late or have overdue tax returns, as they take the view that those trustees who cannot lodge the tax returns on time are unlikely to manage the funds well.
  2. Loan to related parties. Another common mistake that trustees make is lending money to related parties of SMSFs (e.g. relatives, members, business partners, etc.), which is forbidden by the super law. It will cause contraventions if members withdraw money from their funds before they meet the conditions of release.
  3. Borrowing to buy Property. According to the section 68 of SIS Act, SMSFs cannot borrow money except for the following situations:

• Temporary borrowing to pay benefits to members if they meet conditions of release (not exceeding 90 days and value is less than 10% of the value of the fund’ total assets);
• Temporary borrowing to cover settlements of shares (not exceeding 7 days and value is less than 10% of the value of the fund’ total assets).
• Borrowing under Limited Recourse Borrowing arrangement (LIBR).

So, the trustees have to make sure the rules are complied with before they consider using their SMSFs to borrow money.

SMSF Investment Fraud

As total asset value of SMSF assets is over $500 billion and continues to grow, the SMSF sector is very attractive to fraudsters. It will be easy for investment fraud to happen if SMSF trustees do not keep a close eye on their fund’s investments. Normally, fraud tends to occur in the following ways:

• Fraudsters convince SMSF trustees to make fake or poor quality investments; or
• Trustees give control of their SMSF investment accounts to a third party who claim that they can help earn high returns. Then the third party uses the money to make fraudulent investments or just spends all the money for nothing. The less informed trustees are usually victims of these activities.

Disclaimer: Campbell McCart is an SMSF specialist and principal auditor of the SMSF Super Auditors. His advice is general in nature and you should seek professional advice that relates to your specific circumstances before making any decisions.