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Balancing perspectives and the conduct of your SMSF

By Kathleen Conroy
June 13 2013
3 minute read
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Balancing perspectives and the conduct of your SMSF
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Trustees need to remember that, unfortunately, not every aspect of their role can be carried out entirely on their own terms.

The theory of cognitive dissonance tells us, very broadly, that when people hold conflicting beliefs they will attempt to reduce the dissonance by altering or adding to their beliefs and ideas to create harmony. Harmony is good.

This theory has some relevance to the beliefs held by SMSF trustees, notwithstanding superannuation law and recent publicity around that law.


There may, however, be something looming on the SMSF horizon to help trustees achieve inner peace.

Dissonance and SMSFs
Most trustees can recite the mantra that superannuation savings “are yours, but not yet”. They understand that superannuation is all about saving for retirement and that the Australian Taxation Office (ATO), as the regulator for SMSFs, can work to see that harsh penalties are enforced against errant fund trustees.

At the same time, many trustees also seem to hold beliefs – or act, regardless – that are clearly in conflict with these notions. ‘Contra-beliefs’ that I have come across in working with SMSF trustees include:

  • the ATO is obliged to accept a trustee’s undertaking to rectify compliance issues when either faced or issued with a non-compliance notice;
  • the ATO is obliged to enter into negotiations with a trustee with respect to rectification processes;
  • it is or should be relevant to the law that any requirement for a fund to be immediately repatriated will cause financial loss to the fund members;
  • it is or should be relevant to the consideration of non-compliance that as a consequence of particular illegal and/or inappropriate dealings a fund has performed well, as far as return is concerned, as compared to the national average over time;
  • the ATO is or should be obliged to temper any requirement for the winding up of a fund in the face of non-compliance against the retirement intentions or timetable of the members;
  • the issuing of a notice of non-compliance is ‘the end of the matter’; and
  • the ATO is or should be obliged to ignore prosecution even when it does accept an enforceable undertaking as to the conduct of a fund

The immediate thought when faced with the above responses in conversations with trustees on compliance and enforcement is, rightly, “wrong”.

Restoring the balance
New legislation has been tabled to commence on 1 July 2013 that, while not perhaps motivated from the point, has the potential to help trustees move from the discomfort of cognitive dissonance to a more peaceful place on the ‘right’ side of the superannuation fence.

A part of that law is the new ‘education’ rule. This came out of the Super System Review and is part of a group of reforms designed to strengthen the ability of the ATO to deal appropriately with fund trustees who have breached superannuation law.

It addresses the view that the existing regime does not include sufficient flexibility for the proper regulation of the SMSF sector – or, put another way, the view that unless you have been really or consistently bad, as it presently stands you can fall through the system, weakening its integrity, and setting yourself up for true pain down the track.

It is anticipated that the mandatory education provision – or, more formally, an “education direction” – would be used where the ATO considers that the breach or breaches by the trustee arose from ignorance or a lack of proper understanding of the trustee’s obligations and/or superannuation law in general.

It will be a written direction and will require the trustee to successfully complete a specified education course within a specified period of time.

The trustee will need to provide evidence of having completed the course.

As for the education service providers, the course they provide will need to be approved and they will not be permitted to charge any fee to a trustee who is taking the course at the direction of the ATO. A trustee will bear the burden of ancillary costs related to the taking of the course (for example, lost work time), and can object to a direction or request that it be varied. But failure to meet the terms of an education direction will be an offence.

The right approach
The role of trustee of an SMSF is not for the fainthearted or the dissonant-prone. The trustee is legally responsible for the conduct of the fund in an environment of diverse and numerous legal obligations.

It is both foolish and dangerous to think that any compliance action against the trustee will or should be carried out in accordance with the trustee’s timetable or within the trustee’s comfort zone. I hope you have found peace.

Kathleen Conroy is a partner at Gadens Lawyers