Speaking at the SMSF Expo in Melbourne, the ATO’s deputy commissioner, superannuation, James O’Halloran said SMSF trustees have significant responsibilities.

“You’re responsible for operating your fund within the law so you need to understand at least at a fundamental level what this means,” he said, calling on SMSF members to be proactive but also seek help where they should.

“We strongly encourage self-education, but also consider engaging the services of a professional adviser who suits your circumstances. After all, the decisions you make are important life decisions in the context of your SMSF.”

With this in mind, he highlighted the three key areas of ATO concern.

1.       The sole-purpose test

As a pillar of SMSF and super regulation, the sole-purpose test ensures that all investments are for the sole-purpose of providing retirement and death benefits to members.

This means that using funds to provide accommodation for a member or relative could be in breach of this rule, even if the rent is received at arm’s-length.

“Late last year, the Federal Court dismissed an application by the trustee of an SMSF challenging the commissioner’s views on super regulatory provisions related to the sole-purpose test.

“The Federal Court held that leasing to a related party would cause the trustee of the super fund to contravene the sole-purpose test by using the assets of the fund for the collateral purpose of providing accommodation to a related party.”

2.       In-house asset rules

The in-house asset rule means a fund’s in-house assets cannot exceed 5 per cent of total assets, he said, advising the unsure to contact the ATO or seek independent advice.

“The most common regulatory breach we see in SMSFs relates to the fundamental rule that prohibits lending fund monies or assets to members or relatives of members of the fund,” he continued.

3.       Unlawful schemes and arrangements

SMSF trustees can be targeted through unlawful schemes and arrangements, he warned, noting that these approaches usually promise significant tax or financial benefits.

“Indeed these arrangements are complex and cleverly disguised and structured to appear as if they are legitimate. In fact they are illegal and can give rise to very serious consequences for both you and your fund,” he said.

On the other side, the ATO also sees arrangements which aim to promote that SMSFs can roll their future retirement savings out of a superannuation fund and into an SMSF in order to withdraw it and use it as a deposit on a house.

“These arrangements are illegal and you risk losing all your savings,” he said.

“For example, recently, we’ve seen the emergence of schemes and arrangements targeting SMSF members, particularly those approaching retirement.”

He recommended trustees visit the ATO’s Super Scheme Smart program which seeks to assist in identifying illegal arrangements and understand the risks. 

“The last thing we want is for people’s hard-earned retirement savings to be put at risk by unscrupulous promoters. SMSF trustees and members need to be mindful of the regulatory and income tax risks that arise from particular planning arrangements, many of which may appear attractive in light of the new caps and limits that apply post-1 July 2017.

“The old adage stands true: if it seems too good to be true then it probably is!”

‘Greater flexibility’ for SMSFs

Mr O’Halloran’s advice coincides with Minister for Revenue and Financial Services, Kelly O’Dwyer’s announcement that SMSFs will now be able to host six members. Previously SMSFs could only have four members.

“The change will allow for greater flexibility and, given the growth in the sector to date, will ensure SMSFs remain compelling retirement savings vehicles into the future,” said Ms O’Dwyer.

“SMSFs and their members can rest assured that unlike the Labor Party and Bill Shorten, who continue to unfairly target SMSFs through policies like their regressive retiree tax, the government recognises the valuable role SMSFs play in providing competition in the superannuation sector and providing Australians with an opportunity to exert more control over their own retirement.”

“After all, it is their money, and all Australians should have the right to choose how they want to manage their retirement savings,” Ms O’Dwyer concluded.

To the SMSF Association's CEO, John Maroney, the changes mean family groups will now be able to include children and their potential spouses in a single SMSF. 

He said: "Currently, family groups may need to have multiple SMSFs to accommodate more than four members, so this proposal will allow a single SMSF for the group, bringing the benefits of reduced costs and greater scale.”