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Every year self-managed superannuation funds need to file an annual return, but SMSF annual returns are a bit more complex than your regular return so it should come as no surprise that the ATO comes up with some frequent errors. Earlier this year they put together a list of the top five mistakes SMSF trustees make with their returns.
Here we take a look at these mistakes, in no particular order, and examine ways of making sure you avoid them.
1. Not valuing the SMSF’s assets at market value
Providing the correct market value of your assets is an important responsibility of an SMSF trustee. Assets need to be valued as at 30 June each year. If you provide incorrect valuation information you may jeopardise your SMSF’s complying fund status and may incur penalties.
It’s reasonably easy to value listed market assets (i.e. the value they close at on 30 June each year). The difficulty is when it comes to valuing non-listed assets such as real property, collectibles, private companies and private unit trusts.
Real property valuations need to be based on objective and supportable data and made by a competent person. Things to consider when doing so include the value of similar properties, the amount paid in an arm’s length market, independent appraisals, whether or not the property has had improvements since it was last valued for the previous year and net income yields (for commercial properties).
The ATO says to consider getting an independent valuation (from a qualified valuer) if an unlisted asset represents a significant proportion of the fund’s value or the nature of the asset indicates that the valuation is likely to be complex. Independent valuations are required for collectibles.
As a reminder, collectibles refer to:
- Coins, medallions or bank notes
- Postage stamps or first-day covers
- Rare folios, manuscripts or books
- Wine or spirits
- Motor vehicles and motorcycles
- Recreational boats
- Memberships of sporting or social clubs.
2. Lodging a return without auditor details
All SMSFs are required to lodge an auditor’s report with their annual return. This needs to be done by a registered independent auditor (ASIC has a list here) and the auditor needs to notify both the trustees and the ATO of any contraventions by the SMSF.
The trustees need to appoint the auditor at least 45 days before the annual return is due in order for the auditor to complete the audit on time. They also need to supply the auditor with any information they request concerning the fund.
If an SMSF fails to lodge an auditor’s details with the ATO the SMSF return will be suspended and the fund classified as non-complying until the auditor’s report is filed.
Don’t forget it’s illegal to audit your own SMSF or an SMSF of a relative no matter who you are.
3. Bank account not unique to the SMSF
One of the first things that SMSF trustees need to do when they set up their fund is open an account in the name of the fund which is also separate to their individual or company bank accounts. The account will be in the name of the superannuation fund and used exclusively for the fund’s transactions.
The SMSF bank account is there to accept contributions, rollovers and income from investments and to generally manage investments for the fund.
However, not having a separate account for an SMSF must still be an issue for many SMSF funds for the ATO to mention it in its list of top five mistakes. If you weren’t aware of the need to create a separate bank account for the fund, you still have plenty of time to set one up before your next annual return is due.
4. Trying to lodge with zero assets
This might be something that many new trustees are unaware of. An SMSF tax return may not need to be lodged if it has zero assets. An SMSF is a trust and to be a valid trust it must have an asset otherwise it does not exist at law. If a fund has just been set up, and is yet to receive contributions or rollovers from members, then it can apply to the ATO to flag the SMSF as return not necessary (RNN).
In that case the fund needs to confirm (in writing) to the ATO that it has no assets and did not receive contributions or rollovers in the first financial year and that it will be lodging future returns. It also needs to provide documentary evidence of the date the SMSF first held assets and commenced operating (for example a bank statement).
As the lodging date for annual returns is generally months into the following financial year, even if a new SMSF had a zero balance at the end of the financial year, it is likely it will have received contributions before lodging date and it is evidence of those contributions or rollovers that the ATO is seeking.
Trustees written requests must include:
- The SMSF’s name, TFN or ABN
- Confirmation that it meets all eligibility conditions
- Documentary evidence of the date assets were first placed into the fund.
Tax agents can use online lodging services.
5. Providing an incorrect electronic service address (ESA)
If a self-managed superannuation fund is to receive contributions from external employers (i.e. those other than related party employers) it needs to be able to receive SuperStream data electronically. SuperStream is the national data standard through which superannuation contributions need to be paid into superannuation by all employers.
SMSFs are not exempt from this data standard, which was introduced in 2015 as part of a series of reforms to standardise the delivery of money and data.
Any fund receiving contributions via SuperStream needs an electronic service address or an ESA. An ESA is a series of alphanumeric characters with a combination of upper and lower case characters and is case sensitive.
ESA or you can apply directly to a SuperStream message solution provider.
SMSF messaging providers – open to all SMSF trustees
Preparing an SMSF annual return is serious business and something you need to get right if you don’t want your fund to become non-complying and be forced to pay tax at 45% on the total value of the fund, excluding non-tax deductible contributions.