Financial advisers needed to assist SMSF trustees to dispel some of the myths about the sector and superannuation in general to ensure the best strategies could be implemented for those funds and that they remained compliant, according to a former ATO official said.
Speaking at the selfmanagedsuper SMSF Trustee Empowerment Day 2015 in Brisbane last week, McPherson Super Consulting director and former ATO superannuation assistant deputy commissioner Stuart Forsyth identified the misconception regarding entitlements once a person had turned 60.
“A trustee myth I saw at the tax office and still see as a consultant is the attitude that I’m 60 and I can do whatever I like. No you can’t,” Forsyth said.
“We still see people taking their benefits after turning 60 without satisfying a condition of release.”
He said SMSF trustees in that situation had been lucky to date as the ATO had not picked up many of those incidences, but he warned that would more than likely change in the future.
“It’s very dangerous if you get into disputes within families,” he warned.
“So trustees need to be careful between the ages of 60 and 65. Even if you’ve satisfied a condition of release and start putting fresh contributions in, you may not be able to get those benefits out when you feel like it either.”
He cited the notion that an individual had to retire before they could start a pension as another myth needing to be debunked as it meant many trustees could be paying more tax on their retirement savings than they needed to.
He suggested advisers should keep a file note if the client decided not to start a pension when recommended to do so.
“When the SMSF member works out they’ve been paying more tax than they need to, it might be seen as the adviser’s fault because we see that quite a bit,” he said.
A further myth that required addressing was the claim SMSFs were complex, he said.
“As trusts go, I don’t think they are complex. They are relatively straightforward from a trust law point of view,” he said.
“The fund itself doesn’t cause grief; it’s the related-party dealings in most cases that cause the grief.”
He did, however, admit there were some areas of SMSF complexity, such as certain definitions pertaining to non-residence, where great care was needed.
The notion that including ones children in an SMSF was a good idea was another myth requiring closer scrutiny, he said.
“You see situations in SMSFs with kids that go completely off the rails and you get family fights about who’s already taken their inheritance before they were 30 and who hasn’t taken their inheritance, and people stop talking to each other and start behaving very badly,” he said.
“And if that’s happening in the middle of a self-managed super fund, you can fail the definition of a self-managed super fund because you finish up with members who aren’t members anymore or members who are members but no longer trustees because they’ve resigned or been kicked out.
“You can get into a real mess, so you need to be very careful when adding children to an SMSF.”