Overview

A Self-Managed Superannuation Fund (“SMSF” or “Fund”) is in simple terms a regulated superannuation fund controlled by you, as trustee, for your retirement. For nearly two decades SMSFs have been the fastest growing sector of superannuation.

An SMSF gives its members the ability to invest their superannuation assets directly into a wide variety of assets, which can include:

• cash
• shares
• managed funds
• term deposits
• private assets (direct residential and commercial properties, art, antiques, collectables, business real property, private companies).

SMSF’s also allow members more influence over the way their superannuation is managed, and the benefits it provides. However, an SMSF comes with a number of obligations that need to be fulfilled, including the primary obligation that the SMSF be operated for the sole purpose of providing retirement benefits to its members.

We have a specialist team dedicated to advise you on these obligations and what you need to do to fulfil them.

The Fund

An SMSF must have the following characteristics:

• Up to four members
• All members of the Fund are trustees of the Fund or directors of the corporate trustee and there are no other trustees or directors (certain exemptions are available for single member funds)
• No member is an employee of another member unless they are related
• The trustees or directors are not paid for performing their duties as trustees or directors

Certain people may be disqualified from acting as a trustee under the law. Minors (under 18 years old) and other people who are under a legal disability cannot be fund trustees however their personal legal representative can act in their place.

A trust will need to be established for your Fund that meets the SMSF rules under the law.

The Trustee

As trustee, you have sole responsibility for the operation, management and compliance of your Fund, including the lodgement of tax and other regulatory returns and the preservation and payment of benefits. This is a complicated task, with serious implications if you get it wrong. As trustee of your Fund, you are required to understand your responsibilities and ensure that they are properly discharged.

There are a number of covenants contained in superannuation law that impose minimum requirements on trustees and are deemed to be included in the trust deed of every regulated fund. These covenants reflect the duties imposed on a trustee under trust law in general.

The covenants bind trustees to:

• Act honestly in all matters
• Exercise the same degree of care, skill and diligence as an ordinary prudent person would exercise when dealing with the property of another
• Ensure their powers and duties are exercised in the best interests of the Fund members
• Keep the assets of the Fund separate from other assets (e.g. the trustee’s personal assets)
• Retain control over the Fund so that the trustee’s powers and functions are not hindered
• Develop and implement an investment strategy that meets certain standards
• Allow members access to certain information

Who cannot be a trustee of an SMSF?

The criteria for determining the eligibility of being a trustee includes:

Not be a disqualified person

A disqualified person includes individuals who:
• have convicted of an offence involving dishonesty under a Commonwealth, State, Territory or foreign law
• have received a civil penalty order under the Superannuation Industry (Supervision) Act 1993 (SIS Act)
• are undischarged bankrupts
• have been disqualified by the regulator, the Australian
• Tax Office (ATO).

A company cannot act as a trustee of a superannuation fund if:
• a responsible officer of the company is a disqualified person (a responsible officer includes a director, secretary or executive officer); or
• a receiver, official manager, administrator or provisional liquidator has been appointed to the company; or
• action to wind up the company has commenced.

Residency

The central management and control of the SMSF must remain in Australia. This means that the trustees, or a majority of trustees, must be Australian residents or satisfy the temporary absence rule. Generally, the temporary absence rule requires that the majority of the trustees (including the majority of the directors of a company that acts as the trustee of the fund) must not be permanent non-residents or temporary non-residents for more than two years.

The Member

You must operate in two capacities, one as trustee of your Fund and the other as a member.

The key difference between SMSF’s and other private superannuation funds is that all of the members of an SMSF must also be the trustees, except in the case of single member funds.

Special rules apply to single member funds, who must be:

• The sole director of the trustee company; or
• One of only two directors of that company and the member and the other director are relatives; or
• One of only two directors of that company and the member is not an employee of the other; director.

If the single member SMSF does not have a corporate trustee, the Fund must have two individuals as trustees. The member must be the trustee with:

• Another person who is a relative of the member or
• Any other person provided the member is not an employee of that person.

Administrative Requirements

It takes work to run an SMSF, but the benefits of this structure can be worth the extra effort.

An outline of some of the administrative requirements involved are as follows.

• You must keep the Fund’s records for 10 years
• You must keep the Fund’s investments separate from personal investments
• You must prepare and keep accurate accounting and administrative records
• The Fund must continue to meet the definition of an “Australian superannuation fund”
• You must lodge the Fund’s income tax return and prepare regulatory financial statements
• You must appoint an approved auditor to audit the Fund’s financial statements, compliance requirements and overall compliance with the law

Having your own Fund generates a mountain of paperwork and, because of the growing number of these types of funds, the Australian Taxation Office (ATO) is more rigorously monitoring compliance. Breaching any of the regulatory obligations can result in financial penalties. Therefore, it is important to keep on top of the Fund’s administration and paperwork – and that’s where we can help.

 

 

McQueen Financial Group is a corporate authorised representative of Total Financial Solutions Limited. AFSL No. 224 954, ABN 94 003 771 579. This information is of a general nature only and does not consider your investment objectives, financial situation or particular needs. You should not act on any information in this report without first consulting a professional investment adviser in order to ascertain whether the information and any investment decision is appropriate. This information is believed to be accurate however no warranty of accuracy or reliability is given in relation to any advice or information contained, and neither TFSA or its Representatives and officers, agents or employees of either of the aforementioned shall not be held liable for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied (including responsibility to any persons by reason of negligence).