DIY fund warning
Advisers may be opening themselves up to possible litigation by failing to advise clients with DIY superannuation funds on the options available to them under SLAB 3 legislation.
Advisers may be opening themselves up to possible litigation by failing to advise clients with DIY superannuation funds on the options available to them under SLAB 3 legislation.
According to DIY super specialists Australian Superannuation Nominees (ASN), most advisers are unaware that SLAB 3 legislation forced DIY super funds to choose between one of two options.
ASN chief executive Anthony Hall reckons only one in 10 advisers are aware that DIY funds may also become Small APRA Funds (SAFs) before June 30.
He says most planners are only advising their clients to change their trust deeds for the self managed super fund option.
“Apart from contravening the know your client rule, advisers may be open to liti-gation later if anything should happen to the client’s super fund,” he says.
The two major practical differences between an SAF and a SMSF is that an SAF requires an independent trustee and SMSFs are regulated by the Australian Taxa-tion Office (ATO). SAFs remain regulated by the Australian Prudential Regulation Authority.
Hall says the ATO has already made it clear it will be tougher on DIY super funds than their previous regulator.
“The ATO has always been a revenue focussed regulator,” Hall says.
“In the past five years, APRA (and the ISC before it) had only found four cases of non-complying DIY funds.”
“If the ATO moves to wind up a SMSF for a breach, the members of the fund will most likely lose substantial amounts of money. They will probably look to the ad-viser who recommended the fund structure to recover that money through the legal system.”
It is understood the ATO already has served notice on 30 DIY funds that they will have to face the Administrative Appeals Tribunal.
If an SAF breaches the SIS Act, penalties imposed by APRA may be mitigated by the culpability test, which allows leniency on mistakes made by funds through ig-norance. The ATO will not apply the culpability test.
Hall says the Government has extended the right of a DIY fund to choose between a SAF and a SMSF until June 31. The original deadline set down in the legislation was March 31.
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