Graeme Colley, director, technical and professional standards, at SPAA said the association is concerned that these rules are the cause of a “significant number” of breaches of the legalisation.
As a consequence, the rules are exposing SMSF trustees to significant penalties, non-compliance, and potential disqualification.
Mr Colley said the introduction of the new penalty regime for SMSFs has meant a “brush up” of all provisions of the SIS Act and Regulations for trustees and professionals is necessary to ensure the fund meets the rules and that penalties are avoided.
“For the year ended 30 June 2013, the most reported breach by number were loan requirements at 21.3 per cent, with breaches of the in-house asset rules coming a close second at 18.3 per cent. However, by value, the in-house asset breaches accounted for 28.3 per cent of all breaches,” Mr Colley said.
“These percentages signal that many trustees and their advisers do not have an understanding of the in-house asset rules or the fund is not administered as required by the SIS legislation.”
The in-house asset rules require a superannuation fund to manage the investments of the fund so that the market value of its in-house assets does not exceed 5 per cent of the fund’s total assets at market value, Mr Colley explained.
“The trustees of the superannuation fund must ensure they do not acquire, by purchase or transfer, an in-house asset unless the fund will continue to meet the 5 per cent limit after the acquisition," he said.
“At the end of a financial year the trustees are also required to measure the percentage of the fund’s in-house assets and if the 5 per cent market value test has been exceeded at that time the trustees must put in place a plan by the end of the next financial year and dispose, by sale or transfer, of assets to ensure the fund corrects the position and the in-house asset percentage is no more than 5 per cent of the fund’s assets by market value.”