Responsibility and obligations for SMSF trustees

What it means to be a trustee

When you set up an SMSF, you take on the role of either a:

  1. Individual Trustee
  2. Director of a company that is a trustee (called a corporate trustee).
  3. A trustee is a person or company that controls the decisions for invests a fund’s assets for the benefit of the members’ retirement.
  4. A corporate trustee is a company incorporated under the Corporations Act that acts as a trustee for the fund. Generally, to be an SMSF, all directors of the company need to be members and all members need to be directors of the company. If you already have a company you can use it as trustee.
  5. As a trustee or director, you’re responsible for running the fund and making decisions that affect the retirement interests of each fund member, including yourself. You need to comply with the super and tax laws so your fund is entitled to tax concessions and members’ interests are protected.
  6. You are expected to:
  • Act in the best interests of all fund members when you make decisions.
  • Manage the fund separately from your own affairs
  • Ensure the money in the fund is only accessed where the law allows it know,
  • Understand and meet your responsibilities and obligations
  • Ensure your SMSF is independently audited every year
  • Lodge your SMSF annual return every financial year
  • Pay the supervisory levy.
Managing your fund’s investments

One of your key responsibilities as a trustee is managing your fund’s investments. Your investment decisions should be designed to protect and increase your members’ benefits for retirement.

Your investment strategy

You invest according to your written investment strategy. This sets out your fund’s investment objectives and how you plan to achieve them. It takes into account the personal circumstances of all the fund members, including their age and risk tolerance. Regularly reviewing your investment strategy will help you maintain the right mix of investments for your fund and its members.

Restrictions on investments

Being a trustee of an SMSF gives you the flexibility to choose the investments for your fund, but there are some restrictions on how you can invest and what you can invest in. Make your investments

Ownership and protection of assets

You need to manage your fund’s investments separately from the personal or business investments of members, including your own. This includes ensuring that the fund has clear ownership of its investment assets.

Sole purpose test

The fund’s investments are for the sole purpose of providing retirement benefits to members – there cannot be any preretirement benefits to members or related parties (such as letting members use an investment asset).

Risks Associated with SMSF

How your SMSF is regulated

The super system is regulated by four key government agencies:

  • Australian Taxation Office (ATO) – we administer the relevant super laws for SMSFs
  • Australian Prudential Regulation Authority (APRA) – regulates super funds other than SMSFs
  • Australian Securities & Investments Commission (ASIC) – regulates financial services to protect consumers
  • Department of Human Services (DHS) - assesses applications for early release of super on compassionate grounds

As the key regulator for SMSFs, they will help you understand your duties and responsibilities as a trustee under the law and make it as easy as possible for you to comply with your obligations and protect the future benefits of fund members. They check compliance to safeguard retirement income. They are responsible for administering the super and income tax laws.

Investment strategy

Prepare an Investment Strategy

Before you start making investments, you need to have a written investment strategy.

  • Your investment strategy provides you and the other trustees with a framework for making investment decisions to increase member’s benefits for their retirement. It should be in writing so you can show your investment decisions comply with super laws.
  • When preparing your investment strategy you are required to consider whether to hold insurance cover for one or more members of your SMSF.
  • A financial adviser can help you prepare an investment strategy, but you and the other trustees are responsible for managing the fund’s investments.
  • You must review your investment strategy regularly to take the changing circumstances of your fund and its members into account (for example, a new member may join). You don’t need to change your strategy every time you review it but regular reviews will ensure you maintain an awareness of the investment landscape and make adjustments promptly as required.
  • Your review and any decisions made may be documented in the minutes of meetings held during the income year.

Time commitment and skills

ATO Questions

You could be asked these questions once you have established your fund, if you are randomly selected to answer some of these question, and you aren’t aware of the answers, please review your establishment pack or contact our office to further clarify the questions.

Q1 When did you set up your superfund?
Q2 Who is your superfund trustee?
Q3 Who are the directors (of the corporate trustee)?
Q4 Why did you set up the superfund?
Q5 Who set up the SMSF for you? What exactly did they do for you? How much did they charge?
Q6 What is the purpose of a SMSF?
Q7 What is the purpose of the SMSF trust deed?
Q8 Did you set up a bank account? What name is the account in? Which bank? Who are the signatories on the account?
Q9 How much are the rollovers from your existing superfunds?
Q10 What do you plan to do with the rollover monies?
Q11 How to you plan to contribute to the SMSF?
Q12 What documents have you signed so far?
Q13 What are your annual obligations?
Q14 What are the annual fees for accounting, audit, and ATO levy?
Q15 Did someone tell you that you can access the money in the SMSF for personal purposes?
Q16 When can you access the money in your SMSF?
Q17 How does the ATO deal with non-compliance?
Q18 What investments do you plan to make with your SMSF?
Accessing your super

The super in your fund is intended for your member’s retirement and generally can’t be accessed until then.

Preserved and non-preserved benefits

Most of the super held in your fund will be in the form of preserved benefits. These must be preserved in the fund until the time the law and your fund’s trust deed allows them to be paid.

Preservation age

Preservation age is generally the age that a person can access their super benefits once a condition of release has been met. It ranges from 55 to 60 years of age depending on the person’s date of birth.

Conditions of release

Voluntary cashing of preserved benefits generally depends on the member reaching their preservation age and meeting one of the conditions of release – for example, retirement. Compulsory cashing of benefits is required only if a member dies. Your member’s benefits need to be paid out as soon as possible after the member’s death.

Early access to benefits

There are a few conditions of release that allow early access to super benefits before a member reaches their preservation age, but these occur only in limited circumstances, such as terminal illness or permanent incapacity.

Paying benefits

Payment of benefits is usually as a lump sum or an income stream (that is, a pension).

Attention: Never access your Superannuation early. Superannuation is meant for your retirement. Accessing your superannuation before meeting a condition of release is against the law

Costs of Managing an SMSF

Understanding Tax & SMSF’s

SMSFs are subject to income tax but receive concessional treatment if they are complying funds. A complying SMSF’s taxable income is generally taxed at a rate of 15%, compared with 45% for a non-complying fund.

The most common types of assessable income for complying SMSFs are: assessable contributions interest, dividends and rent net capital gains.

  • However, certain types of SMSF income are taxed at different rates:
  • Non-arm’s length income is taxed at 45%
  • No-TFN contributions are taxed at 46.5%
  • Current pension income is exempt from tax
  • Concessional contributions above the concessional cap are taxed at 46.5%.

A complying SMSF is entitled to claim deductions for expenses, such as the supervisory levy and auditor fees, that are incurred in gaining or producing assessable income.

SMSFs must register for GST if they have a GST turnover of $75,000 or more. Most SMSFs don’t have this much GST turnover and so don’t need to register.

Never access your Superannuation early. Superannuation is meant for your retirement. Accessing your superannuation before meeting a condition of release is against the law

Laws and Policies

Reporting, Record Keeping & Administration

As a trustee of your SMSF, you need to:

  • Prepare accounts ensuring you value the fund’s assets at market value
  • Appoint an approved SMSF auditor to audit your SMSF.
  • Prepare and lodge your SMSF annual return each year by the due date.
  • Providing all the information required and paying the supervisory levy lodge an accurate Rollover benefits statement (NAT 70944)
    • When rolling benefits into other funds keep comprehensive records and minutes outlining investment decisions, including reviews of your investment strategy, consideration of insurance for members and how decisions are made for the transactions of your SMSF.
    • Minutes outlining any meetings conducted
    • Reasons for decisions on the storage of collectables and personal-use assets
    • Annual operating statements and annual statements of your SMSF’s financial position
    • Who the trustees of your SMSF are and their consent to act as trustees (trustee declarations)
    • Copies of returns and information provided to members
    • Required income tax and deduction documentation (including any actuary certificates)

Value the fund’s Assets.

From the 2012-13 income year, you are required to value the assets of the fund at their market value for the purpose of preparing your fund’s accounts, statements and the SMSF annual return.

Market value is the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if all the following assumptions were made:

  • That the buyer and the seller dealt with each other at arm’s length in relation to the sale
  • That the sale occurred after proper marketing of the asset that the buyer and the seller acted knowledgeably and prudentially in relation to the sale.

Exit Strategy

Winding up an SMSF

Value the fund’s Assets:

  • Notify the ATO within 28 days.
  • Deal with all the assets of the fund so that the fund has no assets left
  • Arrange a final audit of your fund complete your reporting responsibilities, including lodging your Self-managed Superannuation Fund annual return (NAT 71226) and finalising any outstanding tax liabilities.

There are a number of reasons why you might need to wind up your SMSF:

  • All the members and trustees may have left the SMSF all the benefits may have been paid out of the fund
  • The fund may no longer meet the definition of an ‘Australian superannuation fund’ because the trustees have moved overseas permanently you may have found that running an SMSF is not in your best interests.
  • In some cases you will be able to pay benefits to members when you wind up your SMSF. In other cases the members won’t meet a ‘condition of release’ allowing them to access their benefits or won’t want to, take their benefits so you’ll need to roll them over to another regulated super fund.
Attention: Once a fund is wound up, it can’t be reactivated