Trustee Remuneration Trap
SMSF trustees can’t be paid by their fund for performing their trustee duties but they can potentially be paid for other activities. To be eligible, the trustee must be qualified to provide the service, offer the service to the market and charge at market value. It’s not uncommon for trustees to want to remain unpaid however this may also cause a problem.
Our previous Snippet dealt with deemed contributions where unpaid trustee activity has caused the fund value to be increased. Certain activities, such as preparing the fund accounts by a trustee in their role as accountant (not trustee), is not increasing the value of the fund so is not a deemed contribution. Technically, if the accountant issued an invoice, the fund value would be reduced. Forgiving the increase would then create a deemed contribution.
A more significant issue is where major property work is undertaken by the trustee. If there is no remuneration the deemed contribution is the increase in value to the property (less materials) not the foregone remuneration. Incongruously, unless the trustee is a registered builder in business as such, they can’t be paid so a deemed contribution is inevitable. For individuals, the contribution will be counted against their non-concessional caps which is usually not a problem but could be, given the limitations to NCCs. In practice though, unqualified individual trustees are not likely to perform work of a major nature.
This can’t be said for a registered builder where the work could entail constructing an entire building on vacant land. In this case, market value remuneration is essential particularly as builders are invariably incorporated so the considerable uplift in value would be counted against the much smaller concessional caps. The potential for an excess contribution in this circumstance is high.
As strategic administrators, we raise an adviser alert when we see payments for building materials without any associated labour costs.