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Self Managed Super Fund (SMSF) Article
Keeping evidence to follow the paper-trail
By Tony Negline.
This article may be out of date.
10th September 2008
"He who keeps the best documentation generally wins the argument." This is no truer than in relation to superannuation investments.
Ensuring super fund documents are accurate and correct and retaining copies of these documents for many years is vitally important because innocent and not-so-innocent errors creep into super fund account balances and it can sometimes be very profitable to fix them up. This can only happen if proof can be provided.
One regular reader of this DIY Super column wrote a couple of months ago about his travails with his super fund which he says has over 400,000 members. We'll call him Joe. His litany of complaints stretch over many years:
- Wrongly dating payouts of large lump sums when requested to do it on a specific date (for example, 30 June instead of 1 July which creates major personal income tax problems)
- Forgetting to follow major investment choice changes so missing periods of large growth
- Wrongly taxing lump sum payouts
- Telling Joe he wasn't allowed to contribute $3,000 to his wife's super and claim the $540 offset (as it turns out Joe made the contribution and claimed the offset anyway!)
- It was only by persistence over a long period in each case that all administration errors were reversed
- Just before 30 June 2008 the super fund publicised a free switch opportunity (closing 20 June for changes which would take effect from 1 July). The only problem was that the account balances on their website for the period 14 to 23 June were wrong and did not add up to a member's correct total. "For example, my wife's two options (balanced and growth) in her account, as reported, totalled $90,000 less than the total. We had no intention of switching but alerted them to the error on 16 June and later by fax, pointing out that you could not make a choice between options if you did not know what your own options were worth. They could not tell me what the correct individual totals were and did no fix this until 24 June. They told me in writing that the half yearly reports (which are sent out 3 months after the event) and their daily website balances were 'sufficient information'! Not if they are wrong. At no time during that period of error was a notice placed on their website stating that a member current balances within their investment did not add up to their total.
Joe takes his finances seriously and has enough time on his hands to carefully monitor every aspect of all his investments. He also has an economics degree from a London university and spent some time as CEO of a Law School, "so I'm probably more able to smell a problem".
Joe also says that the super fund always seems to be "extremely defensive and an anti client organisation. If you raise a question in writing they sometimes reply saying that they have put it into their complaints process and will respond in about 90 days and enclose information about complaints processes and the ombudsman, and then they often do not reply."
Joe concludes that, "I shudder to think how many of the members have been dudded without adequate personal knowledge or have been beaten into submission."
It can be a nuisance keeping documentation for many years but Joe's situation shows exactly why this needs to be the case.
You would be wrong to think that these types of problems do not arise in Self Managed Funds. The incorrect recording and misreporting of transactions within SMSFs arises quite frequently. It is true that the errors are often not of the same magnitude as Joe has had to put up with over the years.
Trustees of SMSFs are required to keep documentation for many years. Some documents have to be kept for five years and others for 10 years.
I would argue that these timeframes are too short. Superannuation is a long-term investment and the rules are forever changing. No one can predict what records from ten, twenty or thirty years ago may be important at some future date. As with Joe it might be important just to make sure you're no being ripped-off.
One problem with all this record keeping is how should it be stored? No storage system is perfect. A lot of people simply keep paper. But the problem is that paper takes up a lot of space. It also fades or important parts of documents can get eaten by insects.
A lot of people scan in paper documents into their computer and keep back-up copies in another place. The advantage of this system is that it reduces the storage space because once an electronic copy has been made it's no longer essential to keep the paper copy of most documents. The problem with this approach is that computer programs are always changing and documents which can be read today may no longer be readable with updated software many years into the future.
Documents SMSF trustees must keep for 5 years:
- accurate and accessible accounting records that explain the transactions and financial position of the fund
- an annual operating statement and an annual statement of the fund’s financial position
The following records must be kept for at least 10 years:
- minutes of trustee meetings and decisions (where matters affecting the fund were discussed)
- records of all changes of trustees and the members’ written consent to be appointed as trustees
- copies of all annual returns lodged
- copies of all reports given to members.
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