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Self Managed Super Fund (SMSF) Article
What records must be kept?
By Tony Negline.
This article may be out of date.
31st August 2005
Keeping records is a very important part of running a superannuation fund.
But as with all administrative issues surrounding superannuation there are formal laws that must be followed. But equally, and in some cases more importantly, there are practical issues about what records super fund trustees should keep about their fund.
As we shall see a lot of information has to be kept for many years. What is the best way to store all the paper-work? Some argue that you are best to scan all paper-work into electronic files and then keep good back-ups of these files. But even this is not fool-proof because over time the file formating or software are often superseded and old documents can't be read with updated software. Where should it be stored? Some super fund administrators will keep documents for you. Others leave it all up to the trustees.
The Australian Taxation Office has said that it has found poor and inadequate record keeping is a major problem for small super funds and it has asked trustees to give this area detailed attention.
So what does the law require?
· The minutes of all trustee meetings must be kept for a minimum of 10 years – a failure to comply with this can see a 50 penalty units being imposed. Under current laws a penalty unit is $110 for an individual and $550 for a corporation which means that this penalty is $5,500 for a person and $27,500 for a company. Some SMSF trust deed suppliers also provide a handy collection of sample minutes for the most common issues that should be minuted
- Records showing all changes of trustees – that is appointment and resignation. These changes must be kept for 10 years – 50 penalty units
- Keep copies of all reports that are passed onto the members. These reports must be kept for as long as they are relevant (but in any event for at least 10 years). These records must be available for inspection by the member or the ATO. A failure to comply with this requirement could see a penalty of 50 penalties imposed. Under the super laws, Self Managed Super Funds do not have to provide member statements however most seem to do this for no other reason than the computer program that the fund's administrator uses automatically produces these
- Keep accounting records that correctly record and explain the transactions and financial position of a fund and to enable convenient and proper auditing. In particular, these documents must be a statement of financial position and operating statement and must be kept for 5 years, kept in Australia and in English (or in a form that is readily accessible and converted into English). There are ten penalty units for non-compliance with this requirement. SMSFs do not have to prepare a statement of cash flows (however most accountants seem to do this as a matter of course). All other super funds must prepare a statement of cash flows
Various tax laws also impose their own record keeping requirements. For example, most tax laws say that records should be kept for at least five years. These records must be in written English and may be in electronic form as long as ATO staff are able to access the information and can work out a fund's tax liability from those electronic records.
If the ATO audit a super fund then it may request a list of the main financial products that were used by the fund to finance or manage its activities during the income year. If a fund conducts any transactions overseas with parties related then the ATO may ask for wider range of documentation.
Under current tax law, the ATO has a limited time-frame in which to review and if necessary to amend a super fund's tax liability. In very general terms this is four years. Currently the government is reviewing these time-frames and it is intended that the ATO will only have two years to review a taxpayers affairs. Although the ATO will have a shorter time-frame to check on a taxpayer's affairs, the government does not appear to be reducing the amount of time taxpayers have to retain records.
For Capital Gains Tax purposes there are a lot of record keeping requirements. At a basic level you must keep records that show every act, transaction, event or circumstance, the day it happened, who did the act and the parties to the transaction and how the act is relevant to working out capital gain or a capital loss. It does not matter whether the CGT event has already happened or whether it may happen.
Given that many super funds hold assets for very long periods of time, clearly CGT recording keeping will be important. To potentially reduce the amount of pieces of paper that need to be kept, the ATO suggests the taxpayers keep an asset register which is certified by a registered tax agent. The asset register will keep all relevant information about all transactions involving a particular asset. Even if you use an asset register you must keep your CGT paper records for five years.
These are the minimum requirements that the super and tax laws require. In DIY Super's view, it is better that all superannuants, especially those with a SMSF, keep all documentation forever.
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