SMSF Trustees – what are your roles and responsibilities?

Why do I need to know?

Over the past decade, more and more people have taken up the option of self-managed superannuation funds (SMSFs) to enable greater control over their superannuation; however, there can be a lack of appreciation of the responsibility and accountability requirements associated with being a trustee of a SMSF and as with all matters of law, ignorance is not an excuse when it comes to non-compliance.

 

Even if you outsource some of the management of your fund (e.g. administration through an accountant, administration firm, solicitor or financial advisor), the ultimate responsibility still rests with the trustee and as such, it is crucial to understand the obligations that go with this responsibility.

 

The trustee must comply with relevant legislation (such as the Superannuation Industry (Supervision) Act 1993 [the SIS Act] and Superannuation Industry (Supervision) Regulations 1994 [SISR] and the Corporations Act 2001) as well as other tax laws and the terms of the trust deed of the fund.

 

The trustee is required to sign a declaration confirming they understand the obligations and responsibilities they have taken on in the role of trustee.  Non-compliance can impact on concessional tax treatments and result in penalties.

 

So the question is….   Do you understand all of these areas given that you are signing a legal declaration to indicate that you do?

 

Part One

This is intended as the first part in a multi-part series on SMSF and an overview of the roles and responsibilities of trustees.

We will start with some basic roles and responsibilities…

Sole purpose test

This one is fairly straightforward but crucial as contravention can result in civil and criminal penalties.  It is your responsibility to ensure the fund is ONLY maintained to provide benefits to members on their retirement (or to beneficiaries in the event of the member’s death before their retirement).

 

To be eligible for tax concessions, the fund must be maintained for this purpose and comply including when investing assets and paying benefits upon retirement.

 

If you are investing in collectables (such as wine or art) you will need to ensure that SMSF members do not have access to the assets or use of these assets in contravention of the sole purpose test.

Common breaches involve:

  • investments providing a pre-retirement benefit to the member or an association
  • providing financial help or a pre-retirement benefit to someone with financial detriment for the SMSF

Keeping SMSF funds and assets separate

It is essential to maintain separation between your personal assets and cash holdings/investments and those of the SMSF.

Setting up separate bank accounts and investments in the name of the trustee(s) with reference to the superannuation fund name is the best way to facilitate this.   You should also ensure you have sufficient evidence of the ownership of fund assets.

Investment Strategy and Restrictions

All SMSFs are required to have an investment strategy and to review this on a regular basis.  The trustee must ensure that their investment decisions are in accordance with the documented investment strategy, in addition to complying with the provisions of the trust deed of the fund and the provisions of the legislation (SIS Act and SISR).

You need to reflect the purpose and circumstances of your fund and ensure you have considered:

  • investments to maximise member returns taking into consideration the associated risk of the investment
  • diversification and the benefits of investing across numerous asset classes as a longer term strategy
  • the ability of the fund to meet requirements for benefit payments as members retire and meet cost obligations
  • whether to hold insurance for one or more members
  • the circumstances of the members and their individual situations (e.g. age, income level, retirement needs).

Coming Soon…

Keep an eye out for the next installment in this series which will cover topics such as loans to members, contributions, borrowing and acquisitions from related parties.

CB AUDIT

Should you have any concerns/queries, our staff can assist with education and advising the types of documentation that can be collated throughout the year to ensure that all relevant information is available at the time of the audit.  Our focus is on providing a high quality service to our clients and if we can value add by facilitating greater understanding of the relevant principles and strategies to be best prepared for an audit, then we’d love to assist.

Please contact us to discuss any queries on 1300 CBAUDIT.

If you are not a current client and would like more information on our services, please contact Matt Williams through [email protected].