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Record Keeping (or lack thereof) for SMSFs

By Natalie Gosper, a Solicitor in our Commercial Law team

Most trustees of SMSFs are aware that record keeping is important to ensure their Fund remains compliant and eligible for tax concessions, but few trustees understand the actual ramifications of what happens when you don’t keep the right records.

The task of record keeping is often left to the Fund’s accountant or adviser, which should be a wise choice however there are records the trustees must retain which are often overlooked.

The ATO website contains a great deal of helpful information for SMSF trustees including the records a fund must keep. See https://www.ato.gov.au/super/self-managed-super-funds/administering-and-reporting/record-keeping-requirements/  For example, copies of annual returns must be retained for at least 5 years but records of changes of trustees and minutes recording investment decisions must be kept for at least 10 years.

Where it can go wrong – a real life example

Maintaining the chain of deeds

A and B set up the AB Super Fund in 1987.  They are the trustees of the Fund in their own capacity.
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Shareholder Disputes – Recent Case

Disputes between shareholders occur for many issues, from simple day-to-day business matters to complicated issues of corporate governance. A recent case demonstrates that a dispute can often escalate to litigation if simple rules of decision-making are not followed.

In Carolia Pty Ltd v Crompton, four director/shareholders established a joint venture business in accordance with a part written/part oral agreement. Over the course of the problematic joint venture, meetings were held and resolutions passed without the required notice, inadequate agenda, and in the absence of the agreed quorum. In response, the plaintiff/shareholders claimed that the agreement had been repudiated and sought damages. The court found that the breaches had serious repercussions which resulted in the loss of the value of the plaintiff’s shares and this amounted to repudiation. The plaintiffs were awarded damages for the proven value of their shares.

Interestingly, the judge made the following comment: “It is sad because the amounts in issue while not small are not really large and the expenses of the trial which lasted for nine days may well be out of proportion to any possible result, and the actual cost to the parties will certainly be out of proportion”.
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