Ongoing compliance obligations of an SMSF
Establishing an SMSF is only the beginning. SMSFs have significant ongoing compliance obligations that must be met every year. Failure to comply can result in penalties, loss of the fund’s complying status (which means tax at 45% on the fund’s income, including the market value of its assets less contributions not previously taxed), and personal liability for the trustees.
The fund must prepare annual financial statements and lodge an annual SMSF return with the ATO. The return includes the fund’s financial position, member contributions, pension payments, investment income, and CGT calculations. The return must be lodged by the due date (which depends on whether the fund uses a tax agent) and any tax payable must be paid.
The fund must be audited each year by an approved SMSF auditor. The auditor reviews both the financial statements and the fund’s compliance with the SIS Act and regulations. The audit must be completed before the annual return is lodged. If the auditor identifies a contravention that meets the ATO’s reporting criteria, they must report it to the ATO.
Trustees must maintain and regularly review the fund’s investment strategy. The strategy must consider the risk and return of investments, diversification, liquidity, the members’ ability to pay benefits, and whether the fund should hold insurance for its members. The strategy must be in writing and must be reviewed at least annually or whenever there is a significant change in the fund’s circumstances.
The fund’s trust deed must be kept up to date with current legislation. Superannuation law changes frequently, and an outdated deed may prevent the fund from accepting contributions, paying pensions, or implementing binding death benefit nominations. CoSec Partners can prepare SMSF deed variations to bring your deed up to current legislative requirements for $418 including GST.
Frequently asked questions
Does every SMSF need an audit, even if it did nothing that year?
Yes. An approved SMSF auditor must audit the financial statements and the fund’s compliance with the SIS Act every year, regardless of activity level, and the audit must be finished before the annual return is lodged.
How often does the investment strategy need to be reviewed?
At least annually, and whenever there is a significant change in the fund’s circumstances, such as a new member, a large acquisition, or the commencement of a pension. The review has to be documented; auditors routinely raise a strategy that exists but shows no evidence of review.
What happens if an SMSF loses its complying status?
The consequences are severe. The fund’s income is taxed at 45 per cent rather than the concessional 15 per cent, and the market value of the fund’s assets, less contributions not previously included in its assessable income, is brought to tax in that year. For a fund of any size, that can mean a tax bill of several hundred thousand dollars.
This article is general information only and does not constitute legal, financial, or tax advice. While we endeavour to keep content accurate and current, laws and regulations change frequently. For advice specific to your circumstances, please consult a qualified professional adviser. CoSec Partners Pty Ltd accepts no liability for actions taken based on this content.