ATO and ASIC raised concerns on SMSF “one-stop-shop”
A Self-Managed Superannuation Fund (SMSF) allows individuals to directly control and manage their retirement savings. However, concerns have been raised by the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) regarding SMSF property investments and one-stop-shop organizations.
What is a Self-Managed Super Fund?
A Self-Managed Superannuation Fund (SMSF) is a private method of saving for retirement. It allows the fund members to control and manage how their retirement savings are invested directly. A fund can have up to six members who are usually, but not always, family. All fund members are either corporate trustees or individual trustees, depending on how the fund is set up.
How does an SMSF work?
SMSFs operate similarly to other super funds. However, SMSF trustees are responsible for making investment decisions and implementing an investment strategy for their funds. They are also required to comply with all super and tax laws relevant to the fund, which vary depending on the trustee structure.
As well as this, SMSFs have strict administrative obligations. These obligations require trustees to maintain records, provide financial statements, complete a tax return and organise independent audits. For this reason, some trustees engage with an SMSF specialist or legal council to help them meet their accounting, auditing, and tax reporting requirements. They may also engage with a financial advisor, who can provide financial and investment advice.
Investing in property through a self-managed super fund (SMSF)
In recent years, investing in property through a self-managed super fund has become popular. Trustees may borrow money to fund a direct property purchase. As a trustee, you can also choose which property to purchase, manage the rent and expenses, and decide when to sell. Before you consider investing in property through SMSF, let’s have a deeper look at its pros and cons.
SMSF property investments risks and drawbacks
Both ATO and ASIC have raised concerns regarding SMSF property investments and borrowing as a live policy issue with one-stop-shop organisations.
The ASIC has spoken to consumers about their decisions on setting up an SMSF and found out many SMSF trustees tend to solely invest in property. The trustees would have fairly low balances, borrow money and often bought an off-the-plan property from a property developer. Kate Metz, the ASIC technical adviser to the deputy chair, said “For us, that rings a number of alarm bells, and we think the number of those people will not be well placed to self-fund their retirement.”
Mr James O’Halloran, the ATO deputy commissioner, also expressed that ATO has seen some individuals who have not properly considered the risks with setting up an SMSF and investing in property. People may not have made an informed decision or do not consider the risks involved.
ASIC takes action against SMSF property ‘one-stop shop’
ASIC has commenced proceedings in the Federal Court against a collapsed SMSF services firm for allegedly paying illegal bonuses to advisers around the purchase of property through SMSFs.
ASIC alleges that Equiti FS paid three advisers bonuses totalling $164,750 upon settlement of property purchases those advisers recommended their clients make through either an existing SMSF or an SMSF to be established.
The bonus payments breached the ban on conflicted remuneration under the Corporations Act 2001 because they could reasonably be expected to influence the financial product advice provided, or the choice of financial product recommended, by Equiti FS advisers to retail clients.
Additionally, ASIC stated Equiti FS breached the Corporations Act when its employed advisers gave financial advice on 12 occasions that were not in their clients’ best interests and were not appropriate for their clients. Each advice contained a recommendation to establish an SMSF, purchase a property through the SMSF and borrow funds in order to do so.
ASIC is seeking civil penalties and other orders against Equiti FS. ASIC and the ATO have on numerous occasions highlighted the dangers of buying property through one organisation that organises all steps in the process.
What next?
If you have suffered from loss because of the poor advice on your Self-managed super fund given by financial planners or accountants. and you would like to discuss your experience, reach out to our expert team now. At FD Legal, we specialise in financial dispute law. Because of this, we have expert knowledge of both the Australian legal and financial sectors. We are committed to ensuring our clients receive the best possible advice and guidance on their situation, especially in financial matters. You may also call us at 1300 433 533 or email us at enquiry@fdlegal.com.au.
