Tax Smart Blog

A self managed super fund (SMSF) is controlled and managed by the members of the fund.  As such, the members, as trustees, make all the decisions about how the fund is run, what investments it holds and the type of benefits it can pay.  The level of control and flexibility SMSFs allow are seen as some of their main advantages.

To be a SMSF, a fund must satisfy the following conditions:

1. It has less than five members;

1. If the trustee of the fund is a company (known as a corporate trustee), each director of the company is a member;

1. Each member of the fund is:

1. an individual trustee, or
2. a director of the corporate trustee

1. No member of the fund is an employee of another member, unless they are relatives; and

1. No trustee (or director of a corporate trustee) receives any remuneration for duties or services performed as trustee.

Where a SMSF only has one member, different rules apply.  In this case a one member fund will meet the definition of a SMSF if it satisfies the following conditions:

1. If the trustee of the fund is a body corporate:
2. The member is the sole director of the corporate trustee; or
3. The member is one of only 2 directors of the corporate trustee, and the member is not an employee of the other director (unless they are relatives)
4. If the trustees of the fund are individuals:
5. The member is one of only 2 trustees, and the member is not an employee of the other trustee (unless they are relatives)

In certain situations other people may be permitted to act as a fund trustee on a member’s behalf without causing the fund to fail the SMSF definition.  These situations include where a member has died or is legally disabled.

Who Can Be A Member Of A Self Managed Super Fund?

In general anyone can be a member of a superannuation fund.  However, to be a trustee of a SMSF, each member must be a trustee, aged over 18, and not be a disqualified person.  Where a member is legally disabled or aged less than 18years, another person (i.e. their legal personal representative or guardian) can be appointed to act as trustee on their behalf.

A person will be considered to be a disqualified person if they:

1. Have ever been convicted of an offence involving dishonest conduct;
2. Have ever been subject to a civil penalty for a breach of the sis act;
3. Are insolvent under administration; and
4. Have ever been disqualified from acting as a trustee of a superannuation fund.

Where a fund has a corporate trustee the company will be considered to be a disqualified person where:

1. A receiver, administrator or provisional liquidator has been appointed to the company;
2. The company has begun to be wound up; and
3. The company knows or has reasonable grounds to suspect that a responsible officer (director, secretary or executive officer) of the company is a disqualified person.

Where a trustee of a SMSF becomes a disqualified person, the trustee must immediately advise the ATO in writing.  Severe penalties can apply where a disqualified person knowingly continues to act as a trustee once they have become disqualified.

In certain circumstances it may be possible for a trustee to appeal to the ATO for a waiver of their disqualified status.

Trustee Responsibilities

As trustees, the members of a self managed superannuation fund are ultimately responsible for all aspects of the operation, administration and compliance of their fund.  Significant penalties can apply to trustees who fail to comply with their obligations.

Super Rules Trustee Must Follow:

1. Act honestly in all matters affecting the fund;
2. Exercise the same degree of care and diligence as an ordinary person in managing a fund;
3. Act in the best interests of all beneficiaries of the fund;
4. Keep fund assets separate from other assets (i.e. The trustees’ personal assets);
5. Retain control over the fund;
6. Develop and implement an investment strategy;
7. Not enter any contracts, or do anything else, that would prevent the trustee from properly performing or exercising their functions and powers; and
8. Allow members to access information about the fund and their benefit.

Trustees should be aware of these responsibilities and comply with them at all times.  Trustees appointed after 30 June 2007 will be required to sign a statement declaring that they understand their responsibilities.  Failure to act in accordance with these rules could result in penalties and loss of a fund’s tax concessions.

Sole Purpose Test

The sole purpose test applies to all funds and requires that a fund is established and maintained for the sole purpose of providing benefits to members upon their retirement, or to a member’s beneficiaries in the event of their death.

The sole purpose test is divided into both core and ancillary purposes and requires that a fund is maintained solely for:

1. One or more core purposes; or
2. At least one core purpose and one or more ancillary purpose from the following.

Core Purposes

A trustee of a superannuation fund is required to ensure that a fund is maintained for at least one of the following core purposes:

1. Paying benefits to members on or after their retirement;
2. Paying benefits to members when they have reached age 65; and
3. Paying benefits to member’s dependants or their legal personal representative upon their death.

Ancillary Purposes

Ancillary purposes include the provision of benefits in the event of:

1. Termination of a member’s employment (via resignation or redundancy) with an employer who had contributed to the fund;
2. A member’s temporary or permanent cessation of employment due to physical or mental incapacity;
3. A member’s death after their retirement; and
4. A member needing to access benefits on the grounds of financial hardship or on compassionate grounds.

Trustees must ensure that any decision made in relation to the acquisition, use of sale of assets relates solely to the process of retirement benefits (sole purpose test).  Any asset of a fund that is used to provide a current benefit to members or their associates would be a breach of the sole purpose test and could cause the fund to lose its compliance status.

Accept Member Contributions

The superannuation rules require the trustees of a superannuation fund, including a self managed super fund, to only accept contributions to the fund where the member is eligible to make a contribution.  These rules depend on a member’s age and working status and are summarised below.

Age of Fund Member and What Contributions Can Be Accepted

Under age 65

-        All personal contributions;

1. Eligible spouse contributions where the member and their spouse live together on a genuine domestic basis; and
2. All employer contributions

Age 65 to 74

1. All personal contributions and voluntary employer contributions once the member has been gainfully employed for at least 40 hours in a period of no more than 30 consecutive days in the financial year;
2. Eligible spouse contributions up until age 70 once the receiving spouse has been gainfully employed for at least 40 hours in a period of no more than 30 consecutive days in the financial year; and
3. All employer contributions.  Note that superannuation guarantee contributions can    only be accepted up to age 70.

Age 75+

1. Mandated employer contributions which are contributions an employer is required to make by law, such as contributions required under an industrial award.