Poor documentation is the leading source of non-compliance for SMSFs with trustees ignorant of what paperwork they need to complete, an SMSF lawyer has claimed.
According to Townsends Business & Corporate Lawyers principal Peter Townsend, SMSF trustees view fund documentation and compliance as an annoyance, even while they may be unaware of their obligations, and can be frustrated with what they regard as unnecessary complexity around their own money.
“Trustees often don’t realise the extent of documentation requirements, which is understandable because – in their eyes – why should they have to fill out all these complicated forms for what is often essentially moving money from one pocket to another?” Townsend said.
He made the comments in a column published on the Chartered Accountants Australia and New Zealand website where he added that educating trustees early in their involvement with an SMSF will help them avoid incorrect or incomplete documentation.
“Advisers need to spend time with their clients early on to explain the requirements in a way they’ll understand. Advisers need to clearly spell out what trustees can and cannot do, and what actions require documentation,” Townsend explained.
He noted that a number of recent court cases have highlighted problems with documentation and the potential liabilities faced by SMSF advice providers, including accountants, who may not be protected by professional indemnity cover.
“There’s more risk when advice comes from non-specialists, who might understand the general concepts, but can’t substitute the reliable and quality advice that specialists provide,” Townsend said.
“The case law has shown that the documentation of SMSF are not as good as they should be, nor are the management strategies behind them,” he said.
“Most accountants don’t have the professional indemnity (PI) insurance to cover the risks of using documents from less reliable sources, such as online providers. Accountants’ PI insurance doesn’t cover the provision of legal documents because providing legal documents is not accountants’ core capability. Accountants should employ lawyers to supply documentation that they know will be first class.”
Despite the call to use a legal firm to create SMSF documents, Townsend said digital documentation has a place but early teething problems have prevented its proper rollout.
“A common misconception is that technology has done away with the need for documentation. In reality, digital documentation has made compliance more efficient and convenient, but certainly has not removed compliance requirements.”
“Currently, digital signatures cannot be used for important compliance documents, yet they are widely used for less significant ones. This has created confusion and uncertainty as people aren’t really sure when use is permitted. The government needs to produce a single law that can be applied nationally to resolve this situation,” he concluded.