Trustees of self-managed super funds (SMSFs) are experiencing death by a thousand cuts as the Australian Tax Office (ATO) imposes a raft of “unnecessary and arbitrary rules” on the sector.

This is the view of Ken Raiss, a director of accountancy and wealth advisory group Chan and Naylor, who called for an urgent overhaul of SMSF guidelines in 2013.

He warned that SMSF trustees would not be able to keep pace with the steady stream of “quiet pronouncements” from the ATO.

“As a relatively young but rapidly evolving model, SMSF compliance guidelines contain more than their fair share of unnecessary and arbitrary rules,” said Raiss.

“Some of these are discriminatory, lack logic or simply make the process of providing for independent retirement unnecessarily difficult.

“The ATO must broaden the net of reform to ensure arbitrary SMSF ruling is afforded urgent review and the best interests of Australian investors are put first.”

Chan and Naylor has compiled a list of 10 SMSF rules that it believes require immediate modification:

1) An SMSF must have no more than four members. SMSFs are most often used to provide for retirement income for all family members, yet four trustee positions would not be enough to cater for the average Australian household. The figure should respond to the nation’s needs as opposed to forcing families to either leave family members out of the SMSF or pay to set up an additional fund.

2) An SMSF cannot borrow money to pay for improvements to a single acquirable asset. Should a trustee require money to renovate a property, it cannot be loaned in an SMSF because it is considered to increase risk, though trustees are still allowed to borrow money to purchase that property or asset in an SMSF.

3) A person must pay to set up separate holding trusts per single acquirable asset with debt. Instead of adding acquirable assets with debt into the same trust structure, trustees must pay to set up another.

4) Life insurance (which is tax-deductible in super) cannot be moved from an individual name to a self-managed superfund unless the existing policy is cancelled and reissued. Those who experience a change in circumstances while doing so, such as entering a new age group or different health, could find their new policy does not provide the same cover as their previous insurance policy or worse still cannot be rewritten.

5) If a person is insured in super, he or she can only claim tax deductions for TDP (total and permanent disability) provided he or she is unable to work in any occupation. This should also apply for a person’s own occupation.

6) It is prohibited to buy residential property or unlisted shares through an SMSF from a related party (spouse, child, etcetera) even if supported with a registered valuation. It is, however, acceptable to do the same with commercial property or shares. As long as the sole-purpose test is passed, there should be no limitation on from whom the asset is purchased if executed at arm’s length.

7) After the age of 65, a trustee is no longer entitled to the three-year average contribution. This is age discriminatory. Anybody should be able to benefit from the three-year average contribution entitlement irrespective of age.