Wills & Estates Lawyers NSW

SELF MANAGED SUPERANNUATION FUND (“SMSF”)

TRUSTEE BASICS

Running a SMSF is very different from belonging to a large fund where someone else looks after your benefits. In a SMSF you are responsible for all of the administration of the fund including all compliance, reporting tax obligations.

1. Role as Trustee

As a trustee of a SMSF you are ultimately responsible for running your fund. You may be able to delegate some of the tasks to service providers but you cannot delegate the responsibility.

It is essential that each trustee understands the duties, responsibilities and obligations of being a trustee. There are significant penalties imposed on trustees who fail to perform their duties.

As a trustee of a SMSF, you must act in accordance with:

2. You must act in accordance with the clauses of your SMSF trust deed

Trustees gain knowledge about the fund by reading the trust deed or rules of the fund. A trustee’s responsibilities as trustee are set out in the trust deed. The SIS Act also expressly states the trustee must comply with all of the trust deed provisions. A trustee cannot delegate its duties, responsibilities and/or obligations.

3. You must act in accordance with the SIS Act and the SIS regulations.

The SIS Act and SIS regulations set out matters that trustee’s must comply with such as:

  • Sole purpose test – the object of the sole purpose test is to ensure that regulated superannuation funds (SMSFs) are maintained for the purpose of providing benefits to members upon their retirement, or their dependants in the case of the member’s death before retirement
  • Contribution rules sets out who can contribute, how much can be contributed, when it can contributed and the tax on contributions.
  • Investment rules –  one of the key areas of responsibility for the trustee. It requires the trustee to comply with very stringent duties and obligations when making investments: The main investment rules applying to SMSFs cover the following:
    • having an investment strategy;
    • making investments on an arm’s length basis;
    • restrictions on borrowings;
    • restrictions on lending and providing financial assistance to members;
    • restrictions on the acquisition of assets from related parties; and
    • restrictions on investments in in-house assets.
  • Benefit payment rules the form of benefit payments and the associated taxation will vary depending on factors such as the form in which the payments are withdrawn and how old a member is at the time and on the terms of the trust deed together with the provisions of the SIS Act.
  • Administrative obligations arranging for the SMSF to be audited by an approved auditor, lodgement of tax and compliance returns and provide reports to members at least annually consistent with relevant legislation.

4. You must have an investment strategy

The trustee has a duty to make, carry out and document decisions about investing the assets of the fund and to carefully monitor their performance. This duty involves formulating and implementing an investment strategy for the benefit of all members.

This important duty is prescribed in the SIS Act as a covenant (an obligation of the trustee) under section 52(g).

It is a fundamental duty of the trustee which if your trust deed does not include this fundamental duty the SIS Act deems it to be so included.

The SIS Act sets out what trustees must take into account when formulating an investment strategy.

5. Seek professional advice on an ongoing basis

Because of the responsibility of the trustees of a SMSF for the compliance obligations, the reporting obligations, the administrative obligations and the taxation obligations trustees should seek professional help on ongoing basis even where the trustees have decided to do everything themselves to ensure they are complying with the requirements of the legislation and their trust deed. It’s possible that the professional advisors may fulfill more of a coach or mentoring role rather than getting involved in the nuts and bolts of your SMSF.

But regular advice in this very regimented area is essential to ensure you maintain your compliance with your role as trustee.

For advice and assistance in these matters please contact our Estate Planning Team.


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