Self-managed super funds (SMSFs) are a way of saving for your retirement.
The difference between an SMSF and other types of funds is that the members of an SMSF are usually also the trustees. This means the members of the SMSF run it for their benefit and are responsible for complying with the super and tax laws.
Setting up
Your self-managed super fund (SMSF) needs to be set up correctly so that it's eligible for tax concessions, can receive contributions and is as easy as possible to administer.
Member and trustee requirements
Cost
Ownership of fund assets
The title of fund assets must be in the name of the current trustees 'as trustees for' the fund.
Separation of assets
The fund's assets must be kept separate from any assets members hold personally.
Penalties
Succession
Once you have considered which structure will be most suitable for your fund, appoint your trustees.
Appoint your trustees or directors
All members of a self-managed super fund (SMSF) must be individual trustees or directors of the corporate trustee. If you are not eligible to be a trustee or director, you cannot be a member of an SMSF.
Trustee and director consent
New funds usually appoint trustees or directors under the fund’s trust deed.
You need to ensure that the people who become trustees or directors of the SMSF:
- are eligible to be a trustee or director
- understand what it means to be a trustee or director.
All trustees and directors must:
- consent in writing to their appointment
- sign the Trustee declaration stating they understand their responsibilities (this must be done within 21 days of becoming a trustee or director).
You must keep these documents on file for the life of the SMSF and for 10 years after the SMSF winds up.
The ATO may impose penalties if you don't comply. All trustees and directors are bound by the trust deed and are equally responsible if its rules aren’t followed.
To become a director of a corporate trustee, you will need a director identification number (director ID). This is a unique identifier that a director will apply for once and keep forever. You can apply for a director ID on Australian Business Registry Services (ABRS) online. You will need to apply for your director ID yourself to verify your identity. No one can apply on your behalf.
Ensure members are eligible to be trustees or directors
All members of the fund must be individual trustees or directors of the corporate trustee, so make sure they're eligible.
Anyone 18 years old or over can be a trustee or director of a super fund so long as they're not under a legal disability (such as mental incapacity) or a disqualified person.
Members under 18 years old can't be a trustee or director. However, a parent, guardian or legal personal representative can be a trustee or director on their behalf.
To knowingly act as a trustee, a trustee director or an office holder of a corporate trustee (such as secretary), while being a disqualified person, is an offence.
To be sure you are not a disqualified person you need to be able to answer no to all of the following questions.
Applying to waive disqualified status
You can apply for a waiver of disqualified status if the offence leading to the disqualification was not an offence involving serious dishonest conduct. This means that the penalty imposed for the offence was not either a:
- term of imprisonment for more than two years
- fine of more than 120 penalty units.
The application must be in writing. It must include:
- details of the offence
- court documents about the offence
- consent for the ATO to inquire about the offence to any law enforcement agencies or courts that the ATO think are relevant.
The application should be made within 14 days of the conviction. The ATO will accept applications after this time if you explain the circumstances of your late application.
You cannot become a trustee until the ATO notify you of their acceptance to waive the disqualified status.
You can check the ATO’s disqualified trustees register to see if an individual has previously been disqualified by us. The register:
- provides information already publicly available in the Government Notices . It has functionality to help you search easily and determine if a potential trustee has been disqualified.
- is updated quarterly
- includes all individuals who have been disqualified by the ATO since 2012 (when this information was first published electronically).
Ensure the company can act as a corporate trustee
A company cannot act as a corporate trustee of a superannuation entity, including an SMSF if certain events occur. This can include if:
- the company is aware or has reasonable grounds to suspect that a person who is, or is acting as, a responsible officer of the company is a disqualified person
- an administrator has been appointed in respect of the company
- the company has been deregistered by ASIC
- a receiver, or a receiver and manager, has been appointed in respect of property beneficially owned by the company
- a provisional liquidator or restructuring practitioner in respect of the company has been appointed
- action has started to wind up the company.
What it means to be a trustee or director
Whether you're a trustee or director of a corporate trustee, you are responsible for running the fund and making decisions that affect the retirement interests of each fund member, including yourself.
As a trustee or director, you must:
- act honestly in all matters concerning the fund
- act in the best interests of all fund members when you make decisions
- manage the fund separately from your own superannuation affairs
- know, understand and meet your responsibilities and obligations
- ensure that the SMSF complies with the laws that apply to it.
All trustees and directors are equally responsible for managing the fund and making decisions. You are responsible for decisions made by other trustees, even if you're not actively involved in making the decision.
You can appoint other people to help you or provide services to your fund (for example, an accountant, administrator, tax agent or financial planner). However, the ultimate responsibility and accountability for the SMSF’s actions lie with you, as trustee or director.
As an individual trustee or director of a corporate trustee, you may be personally liable to pay an administrative penalty if certain laws relating to SMSFs are not followed.
Other members of the fund can take action against you if you don't follow the terms of the trust deed. Any fund member who suffers loss or damage because of a breach of any trustee duties may sue any person involved in the breach.
Legal personal representatives
A legal personal representative can be:
- the executor of the will or the administrator of the estate of a deceased person
- the trustee of the estate of a person under a legal disability or a minor
- a person who holds enduring power of attorney to act on behalf of another person (see also SMSF ruling 2010/2).
A legal personal representative can act as a trustee or director of a corporate trustee, on behalf of:
- a deceased member, until the death benefit becomes payable
- a member under a legal disability
- a minor (a parent or guardian can also act as a trustee on behalf of a minor).
A legal personal representative can't act as a trustee on behalf of a disqualified person, such as an undischarged bankrupt.
A legal personal representative does not include a registered tax agent or an accountant unless they meet the definition above.
Trustee declaration
The Trustee declaration is signed by trustees and directors of a corporate trustee of an SMSF to declare they understand their obligations and responsibilities.
Who should complete this declaration
You must complete this declaration if you become a trustee or the director of a corporate trustee of a new SMSF or of an existing SMSF.
This declaration must be signed within 21 days of becoming a trustee or director.
A separate declaration is required to be completed and signed by each and every trustee or director.
You must also complete this declaration if you:
- have undertaken an ATO approved course of education to comply with an education direction
- are a legal personal representative who has been appointed as a trustee or director on behalf of a:
- member who is under a legal disability (usually a member under 18 years old)
- member for whom you hold an enduring power of attorney
- deceased member.
Create the trust and trust deed
A trust is an arrangement where a person or company (the trustee) holds assets (trust property) in trust for the benefit of others (the beneficiaries). A super fund is a special type of trust, set up and maintained for the sole purpose of providing retirement benefits to its members (the beneficiaries).
To create a trust, you need:
- trustees or directors of a corporate trustee
- governing rules (a trust deed)
- assets (an initial nominal consideration to give legal effect to the trust can be used, for example, $10 attached to the trust deed)
- identifiable beneficiaries (members).
Trust deed
A trust deed is a legal document that sets out the rules for establishing and operating your fund. It includes such things as the fund’s objectives, who can be a member and whether benefits can be paid as a lump sum or income stream. The trust deed and super laws together form the fund’s governing rules.
The trust deed must be:
- prepared by someone competent to do so as it's a legal document
- signed and dated by all trustees
- properly executed according to state or territory laws
- regularly reviewed, and updated as necessary.
Assets
To establish your fund, assets must be set aside for the benefit of members.
If a rollover, transfer or contribution is expected in the near future, a nominal amount (for example, $10) can be held with the trust deed. This amount is regarded as a contribution and must be allocated to a member.
If a member can't contribute to the SMSF (for example, they are over 65 or don't meet the work test), an administrative discretion is automatically applied to allow a nominal contribution for the member. The amount must be allocated to the member, solely for the purpose of registering the SMSF.
Check your fund is an Australian super fund
Your SMSF needs to be a resident regulated super fund at all times during the financial year to receive tax concessions.
Fund residency conditions
An SMSF is an Australian super fund if it meets all 3 of these residency conditions:
- The fund was established in Australia, or at least one of its assets is located in Australia.
- The fund was 'established in Australia' if the initial contribution to establish the fund was paid and accepted in Australia.
- The central management and control of the fund is ordinarily in Australia.
- This means the SMSF's strategic decisions are regularly made, and high-level duties and activities are performed, in Australia. It includes
- formulating the investment strategy of the fund
- reviewing the performance of the fund's investments
- formulating a strategy for the prudential management of any reserves, and
- determining how assets are to be used for member benefits.
- In general, your fund will still meet this requirement even if its central management and control is temporarily outside Australia for up to 2 years. If central management and control of the fund is permanently outside Australia for any period, it will not meet this requirement.
- The fund either has no active members or it has active members who are Australian residents and who hold at least 50% of either;
- the total market value of the fund's assets attributable to super interests, or
- the sum of the amounts that would be payable to active members if they decided to leave the fund.
What to do if members go overseas
If members are planning to go overseas for an extended period, get professional advice about maintaining the residency status of your SMSF.
If a member of your fund becomes a non-resident but still wishes to make or receive contributions, they should do this outside their SMSF, for example through a retail or industry super fund. They can then rollover the contributions to their SMSF when they return as an Australian resident.
If your SMSF fails the residency test, you should roll over your funds to a resident regulated super fund and wind up the SMSF. Otherwise, the fund will become non-complying.
Register your fund and get an ABN
When your fund is established and all trustees have been appointed (including signing the Trustee declaration), you have 60 days to register the SMSF with the ATO by applying for an Australian business number (ABN).
Register your SMSF and apply for an ABN
When completing the ABN application, you should:
- ask for a tax file number (TFN) for your fund
- elect for your fund to be an ATO-regulated SMSF. If you don't, your fund will not receive tax concessions and the members’ employers can't claim deductions for contributions
- register for GST (if necessary).