What Do SMSF Administration Firms Do?
While many Australians like the idea of the flexibility that comes with having a self-managed superannuation fund, many also forget the major task of ensuring that the fund complies with legislation and other requirements to avoid penalties.
For example, the most significant legal compliance regulation you have to adhere to is the sole purpose test. However, you also have to consider other administration tasks, such as audit obligations. And if you invest in property prohibited by the Australian Tax Office’s legal compliance rules, they can impose severe penalties.
So, it’s worth considering possibly outsourcing these obligations to an SMSF administration firm. You could continue benefiting from the flexibility of managing your own fund, and the SMSF administrator can focus on ensuring that your fund remains compliant.
The purpose of this blog is to explore what SMSF administration firms do so that you decide if working with an administrator may be right for you.
What Are SMSF Administration Firms?
SMSF administration firms oversee financial affairs and legal compliance of self-managed superannuation funds. In addition, they ensure that the SMSF meets all its legal obligations and continues to comply with ATO rules as they evolve.
This can include:
- monitoring investment activity,
- advising on changes to legislation impacting members of the fund,
- preparing compliance reports for member meetings,
- managing audits or tax returns related to taxation law, and
- liaising with other parties such as auditors or lawyers who may be involved in an audit or investigation into activities within your SMSF by the ATO.
So, essentially, SMSF administration firms can assist with setting up an SMSF, ensure its compliance, and administer its affairs.
How Do Administrators Help with Setting Up an SMSF?
SMSF administration firms typically offer a range of services when it comes to setting up your SMSF. If you can set up your fund properly from the get-go, it minimises the risk of administration issues down the line. For example, you may miss out on the ATO’s tax concessions.
So, an SMSF administration firm can help with the following:
- Appointing SMSF trustees
- Establishing the trust deed
- Preparing documentation such as investment strategy documents required by law which outline how investments will be made within your superannuation fund
- Applying to register the SMSF on relevant government registers like Australian Business Register (ABR)
- Taking out appropriate insurance cover for each SMSF member to protect them against investment risk.
What Does SMSF Administration Entail?
Some SMSF administrative duties include:
- Maintaining investment registers
- Preparing annual financial reports and member benefit statements
- Recording fund transactions
- Preparing and lodging income tax returns
- Pension calculations
- Appointing an independent auditor to undertake an annual audit
Due to the range of administration tasks associated with SMSFs, the administration is typically the most time-consuming aspect of managing an SMSF. As a result, most SMSF administration firms offer daily or yearly administration packages that allows them to reconcile the fund, revalue investments and process member transactions.
SMSF administration firms can also generally assist with the fund’s audit requirements, such as appointing an independent auditor and liaising directly with the auditor to provide the relevant documentation.
What Compliance Services to SMSF Administrators Offer?
Beyond the administration requirements, your SMSF also has to stay compliant with a range of rules. For example, all investment decisions must be made solely for providing benefits to the SMSF members. This is known as the ATO’s sole purpose test.
The compliance rules also govern what types of investments the fund can hold. For example, SMSF trustees can’t buy property from fund members or relatives, and members can’t live or rent out the SMSF property.
And when it comes to borrowing funds to purchase an investment property, SMSF trustees have to enter into a limited recourse borrowing arrangement.
The ATO is also relatively strict about its taxation compliance obligations which include strict lodgement due dates.
Hiring an SMSF administration firm to ensure that all your decisions satisfy these compliance rules will not only save you a significant amount of time but will help to minimise the risk of possible non-compliance, which could land you in hot water with the ATO.
What Are the Pros and Cons of Using an SMSF Administration Firm?
SMSFs are a great way to create highly lucrative investment opportunities for your portfolio. However, if you don’t have enough experience or time on the task, then it is easy to make compliance mistakes.
Engaging an experienced firm that can handle everything from compliance to administration tasks could free up more of your time and shift your focus towards your investment strategy and increasing returns.
However, outsourcing the administrative and compliance task does come at a price. Hiring an SMSF administration firm will add to the existing costs of running your fund. And although that is probably the most significant disadvantage, many SMSF administration firms offer various packages that allow you to tailor their services to your needs.
For example, you might be fine with handling the administrative tasks but may need their help with outsourcing the SMSF audit obligations. So, it is worth getting quotes from a few different firms.
While it may seem like just administrative tasks at first glance, there’s actually quite a lot going on behind the scenes when it comes down to complying with regulations to maintain tax efficiency or meet other standards set by law.
That’s why so many people hire professional SMSF administration firms. It comes at a cost but will save you hassle down the track when things get more complicated.