SPAA - SMFS Professional's Association of Australia

Australia’s peak industry body and foremost authority on self-managed superannuation.

Trustee Information

What is an SMSF?

Self-managed superannuation funds (SMSFs), also known as DIY superfunds, have become a popular choice for Australians who wish to take on the responsibility and control of managing their retirement savings. SMSFs perform the same role as other superannuation funds, by investing contributions and making them available to members on retirement. The difference is, generally, that the members of SMSFs are also the trustees - they control the investment of their contributions and the payment of their benefits. With all members being trustees, they are in a position to ensure their interests as members are protected.

To be an SMSF, a superannuation fund must comply with the definition contained in Section 17A of the Superannuation Industry (Supervision) Act 1993 (SIS Act). Key requirements are:

  • It has a trust deed that meets the requirements of the SIS Act.

  • The fund has 4 or less members

  • Each member of the fund is a trustee

  • No member is an employee of another member of the fund, unless they are related

  • No trustee of the fund receives any remuneration for their services as a trustee

 


Setting up an SMSF

Setting up and operating an SMSF is a major financial decision, as the responsibility for running the fund and complying with the law rests solely with you as the trustee.

While SMSFs are great for some people, they don't necessarily suit everyone. When deciding to set up an SMSF, there are a number of things you should consider:

  • Do you have the time, knowledge and skill to manage your own super fund, as well as the assets and money to make the fund viable

  • Have you compared the costs and benefits of running an SMSF with those of other retirement saving options

  • Are you setting up the fund solely to pay retirement benefits to members or the members'dependants if the members die

  • Do you understand what's involved in managing your own fund and what it means to be a trustee?

Once you have decided to set up an SMSF, and how it should be structured, it's important that it is set up correctly so that:

  • it's a complying fund and qualifies for tax concessions
  • you protect your retirement savings
  • you avoid penalties
  • your fund is able to pay specific benefits
  • it's as easy as possible to administer

As all SMSFs are trusts, there are certain steps you must follow under trust law to set up your fund correctly. These can be summarised in four key steps:

1. Establish the trust

In order to establish the trust, you need to obtain a trust deed that sets out the rules for establishing and operating your fund. Together with the super laws, the trust deed details the powers, duties and responsibilities of the fund's trustees; the rights of the members; and the scope of the operation of the SMSF.

The trust deed must be tailored to your fund and correctly drafted to meet its objectives and the members' needs.

Once you've decided on the type of trustee(s) for your fund, the next step is to appoint them. New funds usually appoint trustees under the fund's trust deed. Remember, for your fund to be an SMSF, generally all members of the fund must be trustees or directors of the corporate trustee.

2. Register with the ATO

Once your SMSF is legally established (by executing the trust deed and setting aside assets for the benefit of members) and all trustees have signed a trustee declaration, you must register your fund with the ATO. When registering with the ATO, you should elect for it to be regulated in order for your fund to be a complying fund and receive tax concessions. This election needs to be made within 60 days of establishing your SMSF.

Once your SMSF has been registered with the ATO, a TFN and ABN will be allocated to the fund.

Where the annual turnover of the fund exceeds $75,000, your SMSF needs to be registered for GST. Annual turnover does not include contributions, gross income from financial supplies (including interest and dividends), residential rent or income generated outside Australia. It does include gross income from the lease of  equipment or commercial property.

3. Open a bank account

You need to open a bank account in the name of your SMSF (not your name or any other entity's name) to manage the fund's operations and to accept cash contributions and rollovers of super benefits.

Contributions and rollovers are deposited into the fund's account. The money is then invested according to the fund's investment strategy and used to pay the fund's expenses and liabilities. Earnings on fund investments are also credited to the fund's account.

The fund's bank account must be kept separate to each of the trustees' individual bank accounts and any related entity's bank accounts.

4. Prepare an investment strategy

Before you start making investments, you must prepare an investment strategy. Your investment strategy should be in writing so you can show your investment decisions comply with it and the super laws.

An investment strategy sets out how you plan to achieve the fund's investment objectives. It provides you with a framework for making investment decisions to increase member benefits for retirement. While a financial adviser can help with the preparation of an investment strategy, the trustees remain responsible for managing the fund's investments.

While there is no prescribed format for the investment strategy, it must consider and reflect the following:

  • diversification (investing in a range of assets and asset classes)
  • the risk and likely return from investments, to maximise member returns
  • the liquidity of fund's assets (how easily they can be converted to cash to meet fund expenses)
  • the fund's ability to pay benefits when members retire, and other costs the fund incurs
  • the members' needs and circumstances.

A SPAA Specialist can assist you with the complexities of determining whether an SMSF is right for you, and if so, assist you with the establishment of your fund.

 


Trustee Obligations

SMSF trustees are ultimately responsible for the operation of their SMSF. There are a number of duties, responsibilities and obligations associated with being a SMSF trustee.

The SMSF trustee needs to act in accordance with the following:

  • The SMSF trust deed
  • The Superannuation Industry (Supervision) Act 1993
  • The Superannuation Industry (Supervision) Regulations 1994
  • The Income Tax Assessment Act 1997
  • The Tax Administration Act 1953
  • The Corporations Act 2001
  • Other general rules such as those imposed under other tax and trust laws

Trustees must meet the following requirements when running an SMSF:

  • Save only for their retirement - the sole purpose test means that an SMSF must be maintained for the sole purpose of providing benefits to members upon their retirement, or to their dependants if a member dies before retirement

  • Have an investment strategy and invest responsibly - this requirement is to ensure that the best possible investment decisions are being made for the fund

  • Keep proper records - this will ensure that trustees can verify their decision-making processes and an accurate history of the fund can be established

  • Keep superannuation assets separate - money and assets of the SMSF must be kept separate from a trustee's personal assets and the assets held by employers who may contribute to the fund

  • Do not lend superannuation money to members or relatives - no direct or indirect financial assistance may be made from the fund to a member or a member's relative

  • Do not borrow money - SMSFs are prohibited from borrowing money except in some limited circumstances.

  • Be aware of the rules when buying assets from a related party - trustees are prohibited from acquiring assets for their SMSF from a related party of the fund

  • Do not allow in-house assets to exceed 5% of total assets

  • Buy and sell assets at true market value - the purchase and sale price of SMSF assets should always reflect the true market value of the asset

  • Make sure contributions are allowable - there are standards in the SIS Regulations designed to ensure that contributions are made for retirement purposes only, and not to avoid paying tax

  • Do not allow disqualified people to be trustees - a disqualified person may not act as a trustee of a superannuation entity

  • Do not take money out early - trustees must not take money out of their SMSF earlier than legally permitted as it is meant for retirement. Early access is permitted only in cases of severe financial hardship or on tightly restricted compassionate grounds

  • Meet lodgment and payment obligations - All SMSFs must lodge a combined  Fund income tax and regulatory with the Tax Office each year

  • Report information about benefits paid to members - the reasonable benefit limit system limits the amount of benefits a person may receive at the concessional tax rate during their lifetime

  • Complete and lodge an activity statement for GST - if the annual turnover of a SMSF exceeds $75,000, the fund is required to register for GST and lodge a BAS statement at the end of each reporting period

 


Ensuring your own SMSF is complying

As an SMSF trustee you want to know that your SMSF is compliant and has the potential for your retirement income to grow. To do this you should always seek professional advice to help manage your SMSF.

SPAA SMSF Specialist Advisors and Auditors can not only assist you to meet your obligations and minimise the likelihood of scrutiny by the ATO (the Regulator of SMSFs), they can also assist you to optimise the benefits of having an SMSF.

 

 


Why use a SPAA SMSF Specalist?

SPAA SMSF Specialists provide peace of mind for your financial future

Are you confident your SMSF is achieving maximum benefit for your retirement? A trusted SPAA SMSF Specialist Advisor™(SSA™) and SMSF Specialist Auditor™ (SSAud®) can assist you to achieve your retirement goals.

Only advisors with the SSA™ and/or SSAud® designation have undergone an independent accreditation program which not only tests knowledge of SMSF legislation and regulatory requirements, but also assesses professional business and ethical practices to ensure 'best practice' standards.

SPAA Specialists are required to maintain their skills and knowledge through continuing education. The SPAA Specialists' work practices, integrity, professionalism and ethical standards are also reviewed on an on-going basis as part of SPAA's Quality Review Program.

Find a SPAA Specialist near you with our Find a Professional search.