New SMSF trustees often fall into the same few traps. Most come from looking for quick ways to make money, which work against an SMSF's real purpose: providing for members' retirement. Here are the five most common.
1. Ignoring the ATO's rules
An SMSF must follow the superannuation laws, which the ATO enforces. Its tax concessions depend on it. Whatever you hear about risk and reward, breaking the rules leads to penalties and losses.
2. Costs nobody planned for
Every fund has yearly costs, such as accounting, the audit and the ATO's supervisory levy. Set money aside for them so they don't catch you out at the end of the financial year. Watch contributions too: going over a cap can mean extra tax.
3. Borrowing problems
The ATO has strict rules for SMSF borrowing. Generally a fund can only borrow through a limited recourse borrowing arrangement. Get help from an accountant and a licensed adviser who know these arrangements, and don't try to set one up on your own.
4. Breaching the rules
An SMSF is a long-term investment for retirement. Trustees who try to work around the rules, for example by using the fund's money for something other than retirement benefits, face serious consequences.
5. Property mistakes
Prevention is better than cure. Before the fund buys or uses property, check the superannuation and tax rules, and read every document. Many problems come from loans and property arrangements nobody checked. Ask your adviser if you're unsure.
We don't mean to put you off. These traps are easy to avoid once you know about them.
If you're a trustee, your accountant or financial planner can help you steer clear of them.