The decision to become a trustee of a self-managed super fund (SMSF) shouldn’t be taken lightly. As a trustee, the responsibility of running the fund and complying with the law rests solely with you.
As a trustee of a SMSF, you must act in accordance with:
- the fund’s trust deed;
- the super laws; and
- the company’s constitution and the Corporations Act, where you are a director of the corporate trustee
SIS Act Requirements
The SIS Act is a guideline for what is required of a trustee. It sets down the duties and responsibilities of a trustee.
As a trustee, you are legally obliged to:
- act honestly in all matters concerning the fund;
- act in the best interests of all the fund members
- keep the fund money and asset separate from any other personal or business money and assets
- develop and implement an investment strategy
These requirements has to be included in the trust deed of a fund.
You can seek advice and assistance from third parties, such as accountants and financial advisers. However, ultimate responsibility and accountability lies with you as the trustee.
Comply with the sole purpose test
The sole purpose test means that a SMSF must operate only to provide benefits to members when they retire or to their dependents if a member dies before retirement.
This is based on the idea that super benefits provide for a person’s retirement. So any investment decision must be made for future rather than present benefit.
Have an investment strategy and invest responsibly
Trustees are required to develop and implement an investment strategy for their fund, and regularly review the strategy.
Why? Because an investment strategy guarantees that investments are made to best achieve the fund’s objectives and to make sure that the fund is not exposed to unwanted risk.
When preparing your investment strategy, you need to consider the following:
- investing in a range of assets
- the risk and likely return from investments
- how easily the fund’s assets can be converted to cash to meet fund expenses
- the fund’s ability to pay benefits when members retire
You have to make sure that all investment decisions are made according to the investment strategy. If you have any doubt, seek financial advice.
Keep proper records
Under super and tax laws you are required to keep accurate records.
You have to keep accounting records that show the fund’s transactions and financial position for five years. Records of changes of trustees, members’ written consent, and all lodged returns have to be kept for ten years.
These records will make sure that you meet your tax and audit obligations and will assist in the efficient operation of your fund.
Keep fund assets separate
All fund money and assets must be kept separate from personal or business money and assets. You mustn’t use Fund money for personal or business purposes under any circumstances. This is to ensure that fund investments are made only to provide for members in retirement.
Don’t lend super money to members or relatives
A fund’s assets mustn’t be used to provide financial assistance to a member, or a member’s relative. You’re not allowed to provide a loan to a member, or a member’s relative. This ensures that investments are made only to provide for retirement.
Don’t borrow money
A SMSF is not allowed borrowing money. This is to ensure that there is money available to pay out member benefits at retirement.
Buying assets from a related party
As a trustee, you are not allowed to acquire assets from a related party of the fund.
But there’re exceptions to this rule- you’re permitted to purchase assets from a related party where:
- the asset is acquired at market value and is either a listed security (e.g. shares) or is property used for business
- the asset is an in-house asset that is less than 5% of the fund’s total assets.
Don’t allow in-house assets to exceed 5% of total assets
An in-house asset is:
- a loan to a related party;
- an investment in a related party; or
- a lease of a fund asset to a related party
A SMSF is restricted from lending to, investing in, or leasing to, a related party of the fund. You can acquire an in-house asset provided it’s less than 5% of the fund’s total assets.
Remember, that loans are prohibited if the related party is a member or a relative of a member.
Buy and sell assets at true market value
The purchase price of fund assets should always reflect a true market value for the asset. Income from assets should always reflect a true market rate of return. This ensures that no money is withdrawn from the fund prematurely. For example, a trustee acquires an asset from a related party. Say they pay more for the asset than the market value. In effect, this transaction has allowed money to be withdrawn from the fund earlier than allowed.
Make sure contributions are allowable
It’s important to remember that contributions must be made for retirement purposes only and not to avoid paying tax.
Eligibility of trustees
A disqualified person cannot act as a trustee of a SMSF fund. A person cannot act as trustee if they have been convicted of a criminal offence, are bankrupt or under the age of 18. A company cannot act as trustee if action has commenced to wind up the company.
Do not withdraw money early
You’re not allowed to take money out of the fund early as it is meant for retirement. Using a SMSF to gain early access to superannuation benefits is illegal. Penalties will apply to the fund and the member receiving the benefits. The fund faces the risk of being made uncomplying. This would mean that the fund would be taxed at the highest marginal tax rate.
Lodgement and payment obligations
All SMSFs must lodge a Fund income tax and regulatory return (NAT 0658) with the ATO each year.
Before lodging the return, the financial accounts and statements of the fund must be audited by an approved auditor.
Complete and lodge an activity statement for GST
A fund must register for GST if its annual turnover is more than $75 000. It’ll also be required to lodge a Business activity statement (BAS) at the end of each reporting period. The majority of funds won’t reach this threshold and won’t be required to lodge a BAS.
Would you like to find out more about how we can help you?
Schedule a FREE initial service consultation with one of our SMSF accountants Sydney, today!
You’ve got nothing to lose and everything to gain.
Call us on 1300 399 829 now
Alternatively;
Follow us – We’re Social!