SMSF Facts and Regulations

(This page focusses on SMSFs. For articles on superannuation generally, go to the ‘Superannuation Strategies’ tab under ‘Superannuation/SMSFs’ on the home page menu).

Main Characteristics of Self Managed Super Funds (SMSFs)

For a comprehensive coverage of SMSF regulations, the best source is direct to the regulator, the Australian Taxation Office, on www.ato.gov.au/superfunds. Using this site is the best way to learn the official position, and much of the content of the following section is taken from this source (by permission). The key messages from the ATO for trustess of SMSFs are here.

Like other super funds, SMSFs are a way of saving for your retirement. The difference between an SMSF and other types of funds is that members of an SMSF are the trustees. This means the members of the SMSF run it for their own benefit.

SMSFs aren’t for everyone and you should think carefully before deciding to set one up. It’s a major financial decision and you need to have the time and skills to do it. There may be other, better options for your super savings. Either way, you should obtain professional advice.

An SMSF trustee must manage the fund’s investments in the best interests of fund members and in accordance with the law. Investments must be separate from the personal and business affairs of fund members.

The SMSF can accept money contributions for members from various sources but there are some restrictions, mostly depending on the member’s age and whether they have exceeded the contribution caps. Generally, an asset cannot be accepted as a contribution from a member, though there are some exceptions.

As a trustee, there are many ongoing administrative obligations, such as arranging an annual audit of the fund, keeping appropriate records and reporting to the ATO on the fund’s operation. The Australian Prudential Regulation Authority (APRA) has warned trustees of large super funds to ensure their data is complete, accurate and timely, and has advised that the industry does not handle this issue well. This official warning is also worth reading by trustees of SMSFs, see here.

Accessing the super in an SMSF to pay benefits is generally only allowed when a member reaches their ‘preservation age’ and meets one of the specified conditions of release such as retirement. There are very limited circumstances, such as death or terminal illness, where a member’s super can be accessed before this. There are significant penalties for unlawfully releasing super benefits.

The income of an SMSF is generally taxed at a concessional rate of 15%. To be entitled to this rate, a fund must be a ‘complying fund’ that follows the laws and rules for SMSFs.

At some point, an SMSF may need to be wound up. This could happen if all the members and trustees have left the SMSF or all the benefits have been paid out of the fund.

For a fund to be an SMSF, it needs to meet several requirements under the super laws. The requirements are different depending on whether a fund has individual trustees or a corporate trustee.
If a fund has individual trustees, it is an SMSF if all of the following apply:

■ it has four or less members
■ each member is a trustee
■ no member is an employee of another member, unless they’re related
■ no trustee is paid for their duties or services as a trustee.

If a fund has a corporate trustee, it’s an SMSF if all of the following apply:

■ it has four or less members
■ each member of the fund is a director of the company
■ each director of the corporate trustee is a member of the fund
■ no member is an employee of another member, unless they’re related
■ the corporate trustee is not paid for its services as a trustee
■ no director of the corporate trustee is paid for their duties or services as director in relation to the fund.

Please see www.ato.gov.au/super for further details.

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