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Self Managed Super Fund (SMSF) Article
Super sized penalties
By Tony Negline.
This article may be out of date.
28th October 2008
It may surprise many small super fund trustees that they don't look in the normal super laws if they want to know what information they have to give members.
The member reporting rules are actually in the Corporations Act 2001 and its regulations (Corps Act) and is administered by the ASIC not by the Tax Office, the regulator for most small fund matters.
Under the Corps Act super fund trustees must prepare a report that provide details to fund members about their interests in the fund and trustees must hand this over within a certain period of time. This is pretty boring stuff but trustees can face punitive penalties if they don't comply with every part of these rules.
The Corps Act says that a report to members must be provided at least once per year but can be more frequent if the super fund trustees would like to do this. Not many small super funds would want to provide this information more often than yearly.
This annual report must be given within six months after the end of the relevant reporting period. This means the report must be given by 31 December if a super fund's balance date is 30 June.
Most small super funds prepare the member statements as part of the all-in-one administration process that sees them prepare the fund's accounts, asks the auditor to review the fund and submits the annual ATO return. Often this work happens between mid-February and 15 May which is the last day ATO returns are due.
It is therefore highly likely that most small super funds do not meet the 31 December deadline.
The periodic report must be given in writing and can be delivered either on paper or electronically. It must include a brief description of each transaction. The value given to each transaction must include (if relevant) the amount of GST, the stamp duty and income tax (after deductions have been taken into account).
Any description of a contribution paid into the fund must identify the source of the contribution.
It is acceptable to group similar transactions together if it's practicable to do so and the items are described together on a consistent basis.
The fees and charges which must be itemized in a Product Disclosure Statement must also be itemized on a periodic report and must be described using the same terms.
Anyone receiving a benefit from a small super fund because of the death of a former member of the fund must receive a report setting out details (in summary form) of arrangements that the trustees have made to deal with inquiries and complaints.
The penalties for not complying with any part of these reporting rules, including delivering the report late, are potentially a fine up to $11,000 for an individual or $55,000 for a company, two years imprisonment or both.
These penalties are really aimed at all non-Self Managed Super Funds and it would be unusual if they were applied to a small fund. However one should not assume that the ASIC would not ask a Court to apply them.
Also under the Corps Act, super fund trustees must notify the "holder of a financial product" – ie, the member of a small super fund – when there is any material change or significant event that would have been be specified in a Product Disclosure Statement for the financial product. Michael Hallinan from Townsends Lawyers believes that Costellos 2007 super reforms would be a good example.
The information must be written in such a way that the small super fund member is able to understand the nature and effect of the change or event and its impact on their interest in the fund.
Time limits might apply on when this information must be provided. If the notice involves an increase in fees and charges then this report must be provided 30 days before the fees and charges are imposed.
The penalty for not complying with this provision are especially severe. They are $22,000 for an individual or $110,000 for a company, five years imprisonment or both.
It is my guess that most small super funds do not comply with this requirement.
A member of a super fund may also request information about their fund. If the information is sought to help the member understand their fund or assist in making an informed judgement then the trustee must provide this information. Employers are also allowed under this rule to ask for details about a fund their employees will belong to. Once these requests for information are made then employers have to make "reasonable efforts" to comply within 1 month of receiving the request.
It certainly seems strange that a small super fund member might want to use these provisions – especially when they are a trustee of the fund and are meant to be intimately involved in the running of the fund.
Perhaps this provision might be used when a couple who are members of the same small super fund are divorcing. Assume that one person has had little involvement with the super fund and is finding it difficult to get access to the fund's files and records.The penalties for not complying with any part of this rule, including delivering the report late, are potentially a fine up to $11,000 for an individual or $55,000 for a company, two years imprisonment or both.
Minimum Member Reporting Requirements
The annual member report must at a minimum contain the following information and where possible in dollar amounts (for the reporting period):
- opening and closing balances
- the termination value of the investment (which for small super funds will be the closing balance
- transaction details
- any increases in contributions by the member or another person
- return on investment on an individual basis if reasonably practicable to do so or otherwise on a fund basis
- details of any change in circumstances affecting the investment that has not been notified since the previous periodic statement
Source: Corporations Act 2001
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