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SMSF Securing the Assets of the Fund

The Superannuation Industry (Supervision) Act 1993 (SISA) contains covenants that are included in the governing rules of all regulated superannuation funds. They aim to protect member assets for retirement purposes. One of these covenants requires trustees of a superannuation fund to keep money and other assets of the superannuation fund separate from their personal assets and the assets held by employers who contribute to the fund.

Securing the assets of the fund

Trustees must ensure that the fund's ownership of its investments is assured. As the regulator of SMSFs, the Tax Office requires the fund's assets to be held in a legally recognised ownership arrangement. They prefer the assets to be in the names of all of the individual trustees as trustees for the fund or, in the case of a corporate trustee, in the name of the company as trustee for the fund.

It is recognised that in certain states, restrictions may prevent SMSFs from holding assets using the fund's name at all. In this circumstance, a caveat, legal instrument or declaration of trust must be properly executed for the asset, to clearly show the fund's ownership of the property. Failure to take appropriate action to protect the fund's assets is a breach of trustee duties and responsibilities. If a restriction from holding the assets using the name of the fund exists, these restrictions should be clearly documented in trustee meeting minutes.

Separation of assets

Trustees are required to keep the books and accounts of the fund separate from those of other entities. As the fund's accounts include the value of property owned by the fund, it is necessary that the property is correctly titled to demonstrate legal ownership by the fund.

Without securing and separating the ownership of the assets trustees are at risk of losing their assets to other parties, including via bankruptcy proceedings and/or fraud and theft.

Assets not currently held in the name of the fund

SMSFs that breach the separation of assets rule are expected to rectify the breach as soon as possible. Where an auditor reports to the trustee that a fund's assets are not recorded to demonstrate legal ownership by the fund, the Tax Office expects the trustees to take prompt action to rectify the breach.

It is recognised that certain types of breaches take longer to rectify than others. Where approved auditors report these breaches to the Tax Office for years prior to the financial year ended 30 June 2005, they will not take immediate investigative action. However, where the breach is reported again for the financial year ending 30 June 2005 or a subsequent year, the trustees will be subject to scrutiny.

Copyright Commonwealth of Australia, 17 June 2005.

This article is not a substitute for independent professional advice. We do not warrant the accuracy, completeness or adequacy of the information or material in this article. All information is subject to change without notice. We and each party providing material displayed in this article disclaim liability to all persons or organisations in relation to any action(s) taken on the basis of currency or accuracy of the information or material, or any loss or damage suffered in connection with that information or material. You should make your own enquiries before entering into any transaction on the basis of the information or material in this article. Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation.

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