Regulation

Ask Colley on SMSF recording keeping

By AMP Capital

In this edition of Ask Colley, Graeme answers “What records do I need to keep and when? And how long do they need to be kept for?”.

Q. What records do I need to keep and when? And how long do they need to be kept for?

A. Record keeping for superannuation funds is always a moot point. What do you need to keep, when records need to be kept, and how long should they need kept for? Some SMSFs have resolutions and minutes for every investment transaction while others don’t go into much detail at all. But what level of detail is really necessary? The answer lies in your fund’s trust deed, investment strategy, and what is required by the tax and superannuation legislation.

Every time your SMSF makes or disposes of an investment, the transaction needs to be seen in the context of its investment strategy and the degree to which allowable asset classes, ranges, and allocations are specified in that strategy. This will have a bearing on the amount of documentation required.

The SIS legislation does not include specific provisions for recording SMSF investments. This means that investment reporting requirements for all superannuation funds apply to SMSFs as well. In this context, it seems reasonable that the more detailed your fund’s investment strategy, the less likely it is to record investment decisions. However, in contrast, an investment strategy written in very general terms may mean the recording of investment transactions more frequently and in greater detail.

For example, let’s take an SMSF that has taken a balanced option and directed contributions to that option each time. In this situation, the trustees would be unlikely to have a meeting each time a contribution is made to the fund and decide where the money should go. In contrast, if the fund’s investment strategy is couched in broad terms and a member wishes to select specific investments as permitted by the fund’s trust deed, then documents indicating whether the selection is consistent with the overall investment strategy of the fund is likely to be worthwhile.

There are some areas where best practice seems to dictate that you should prepare detailed documentation and/or minutes, especially where the transaction is linked to specific provisions of the SIS Act and Regulations. Examples would include:

  • Acquisition of direct property by the fund whether it is wholly owned by the fund or jointly. Documents would include those relating to the purchase of the property, rental agreements, agent appointments and those relating to service providers to handle repairs and maintenance,
  • Any collectable or artwork which requires documentation relating to insurance, storage and possible leasing which may be required due to the legislation,Loans by the SMSF to related and non-related parties which require a written loan agreement specifying the terms and conditions of the loan,
  • Any “in specie” contribution or acquisition of an investment which needs to be tested against the acquisition of assets from related parties accompanied by a minute stating the transaction is permitted,
  • Any in-house asset acquisition should be documented as the 5% testing of the amount needs to be verified at the time of acquisition as well as outlining how the ongoing monitoring of the limit will be conducted,
  • Finally, any investment where the Trustees act more in the capacity of an investment manager, rather than trustee should be documented as the terms and conditions of the investment should be documented.

As trustee, you should affirm the investment strategy at least annually noting whether all current investments are consistent with that strategy. This will then cover any other investment related transactions that do not require specific documentation.

Make sure you review the investment strategy or vary it when certain member related events occur. This would include admission, resignation, death of a new member, or the commencement of a pension benefit or lump sum.

Other good reasons for recording information about the fund’s investments relate to the trustees being challenged. Documenting an investment decision can be used as a legal defence to justify why it was made. Documentation assists auditors in carrying out their responsibilities under the SIS legislation and for reporting to the ATO as the regulator of SMSFs.

The superannuation law requires that some records must be retained for various periods. For example, the fund’s accounting records, annual returns, and other statements are required to be kept for at least 5 years. However, minutes of meetings such as reviewing the fund’s investment strategy, changes of trustees, member reports, storage of collectables, and personal use assets need to be kept for at least 10 years. Documents like the fund’s trust deed and other essential documents should be retained if the trustees consider the fund may be subject to challenge.

Keeping records for an SMSF serve many purposes to provide a ‘corporate memory’ for the fund which may be required for compliance purposes as well as to protect you as the trustee from any unfounded challenges.

  • Acquisition of direct property by the fund whether it is wholly owned by the fund or jointly. Documents would include those relating to the purchase of the property, rental agreements, agent appointments and those relating to service providers to handle repairs and maintenance,
 
  • Any collectable or artwork which requires documentation relating to insurance, storage and possible leasing which may be required due to the legislation,
 
  • Loans by the SMSF to related and non-related parties which require a written loan agreement specifying the terms and conditions of the loan,
 
  • Any “in specie” contribution or acquisition of an investment which needs to be tested against the acquisition of assets from related parties accompanied by a minute stating the transaction is permitted,
 
  • Any in-house asset acquisition should be documented as the 5% testing of the amount needs to be verified at the time of acquisition as well as outlining how the ongoing monitoring of the limit will be conducted,
 
  • Finally, any investment where the Trustees act more in the capacity of an investment manager, rather than trustee should be documented as the terms and conditions of the investment should be documented.
  • Regulation
  • SMSF News
  • Self Managed Super Funds (SMSF)

Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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