Getting documentation right

There is still disagreement within the SMSF industry about how minutes, documents and agreements need to be structured.

Some SMSF professionals think too much documentation is barely enough, while others use a shredder to keep compliance to a minimum.

This year the ATO has upped the ante on compliance requirements by making Section 105 of the Superannuation Industry (Supervision) Act 1993 (the “duty to keep reports") a reportable contravention. This can mean an $8,500 fine per trustee if they don’t keep member reports for at least 10 years.

Most SMSF auditors will pass this responsibility back onto trustees by inserting a new clause in their trustee representation letters. After all, who’d want to review 10 years’ worth of member statements?

Since 2007 trustees have also been required to sign a trustee declaration (within 21 days of becoming a trustee) stating they understand their responsibilities and obligations.

Failing to sign a copy can result in administrative penalties of $850. SMSF practitioners should be aware there are further penalties if a copy isn’t kept for at least 10 years.

Whether we like it or not, compliance is here to stay – and it’s only going to get more onerous in the future.

So how do you walk the fine line between what’s acceptable and what’s not? Section 103 of the SIS Act (“duty to keep minutes and records”) already obligates trustees to keep minutes for at least 10 years. But are there any situations where SMSF practitioners should advise clients to keep additional documentation?

What do SMSF auditors want?

It’s hard to understand (especially during an audit) what’s happened with a fund when there’s nothing in writing to document it.

The simplest way around it is to adopt the mantra, 'If in doubt, write a minute'. You don’t need to generate volumes of paper or be flippant about it, but it’s important to have a record of communication between SMSF trustees, accountants and auditors to ensure SMSFs not only run efficiently, but are also compliant.

Here are five situations in which a simple minute can clarify how an issue was resolved:

- Making the transition back to accumulation mode after a pension underpayment
- Having a related party renew a lease agreement when the original agreement expires
- Accidentally paying a personal expense from the fund’s bank account (note that depending on the circumstances, this may still result in a breach)
- Determining the contributions each member receives
- Satisfying the work test where a member over 65 makes contributions

In the long run, documenting the unusual can save SMSF practitioners and SMSF trustees, as well as those involved in auditing SMSFs, a lot of time and money.

No-one wants to live in a world where SMSF compliance burdens grow unabated. By documenting issues as they occur, you can often put an end to dragging out fund compliance and not meeting lodgement deadlines. Just think about when that extra information will make the biggest difference.

Shelley Banton, director, SuperAuditors