Trustee Obligations

Delegation of Responsibility

While Trustees can appoint other people to do things on their behalf (including accountants, financial advisors, tax agents, professional superannuation fund administrators etc) the Trustee ultimately continues to be required to retain control over the SMSF and ensure that it is run in a prudent manner while complying with all legal requirements at all times. Trustees should consider their ability to ensure continual compliance when deciding what type of Supercorp service they require – Annual or Daily.

Who can be a Trustee

Anyone over the age of 18 can be a trustee of a superannuation fund except if they are a disqualified person.
A person is disqualified if:

  • At any time the person has been convicted of an offence involving dishonesty; or
  • At any time, the person has been subject to a civil penalty order under the SIS Act; or
  • The person is an insolvent under administration (e.g. an un-discharged bankrupt); or
  • The person has been notified by either the ATO or APRA that they are a disqualified person.

A company would not be permitted to act as trustee if:

  • A responsible officer of that company is a disqualified person (a responsible person includes a director, secretary or executive officer); or
  • A receiver, official manager, or provisional liquidator has been appointed to the company; or
  • Action has commenced to wind up the company.

Trustee Obligations

As a trustee of an SMSF, you need to act according to the following:

  • Your fund’s trust deed
  • the provisions of the superannuation laws, including
    1. Superannuation Industry (Supervision) Act 1993 (SISA)
    2. Superannuation Industry (Supervision) Regulations 1994 (SISR)
  • The income Tax Assessment Act 1997 (ITAA 1997)
  • The Tax Administration Act 1953 (TAA 1953)
  • The Corporations Act 2001
  • Other general rules, such as those imposed under other tax and trust laws.

Sole Purpose Test

Trustees must ensure that the SMSF is maintained for the purpose of providing benefits to Fund Members generally upon their retirement or transition to retirement or to their dependants in the event of their death.

One of the most common ways to determine if a fund has contravened the Sole Purpose Test is to examine the fund’s investments. A well known example of a breach of the Sole Purpose Test is where an SMSF had a beach-side house as one of its investments and the members used it regularly without paying rent.

A breach of the Sole Purpose Test is very serious and can result in Trustees facing civil or criminal penalties.

Loans to Members

Trustees must ensure that no assets or cash from the SMSF are loaned to any member or the relative of any member – this includes short term loans or in specie loans.

Borrowings

SMSFs are generally excluded from being able to borrow subject to some very limited exceptions. The prohibition on borrowing may also affect an SMSFs ability to invest in certain geared trusts or some forms of derivatives. Trustees wishing to invest in these classes of asset are encouraged to seek professional investment advice prior to making such investments.

In-House Assets

An in-house asset is a loan to, an investment in, or a lease with a related party of the fund. In general, SMSFs are restricted from lending, investing or leasing more than 5% of the fund’s total assets in a related party of the fund. Some exceptions do exist, including allowing an exemption for business real property which is subject to a lease between the fund and a related party of the fund and a limited exemption for certain investments in related non-geared trusts or companies.

Acquisition of Assets from related parties

SMSFs are generally prohibited from acquiring assets from related parties and must generally acquire assets on an ‘arms-length’ commercial basis where the purchase or sale price of the asset reflects its true market value. The following limited exceptions apply:

  • The asset is an in-house asset and its acquisition would not result in the level of in-house assets of the fund exceeding 5% of the fund’s assets; or
  • The asset is a listed security such as a share listed on an approved Stock Exchange; or
  • The asset is a widely held unit trust; or
  • The asset is business real property (land and buildings used wholly for business purposes) where there is no debt or loans

Anti-Money Laundering

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (‘AML/ CTF’) was introduced to bring the Australian system into line with international standards. While SMSFs are specifically excluded in the current round of restrictions they do apply to a number of institutions and people who SMSF Trustees may have to deal with including:

  • Banks, Credit Unions, Building Societies
  • Financial Planners who arrange for the issue of financial products
  • Custodial service companies
  • To ensure that Trustees do not breach the AML/CTF requirements Supercorp may seek additional forms of identification before conducting services such as:
  • Opening an account with a bank or other financial institution; or
  • Sending, receiving or transferring funds electronically; or
  • Buying or selling bullion; or
  • Paying out superannuation benefits.

Contributions

Trustees must ensure that when accepting contributions they are aware of the minimum standards of information in relation to these contributions and that they are made to fund retirement benefits only. Contributions can generally be made in cash (or by cheque or EFT) or in specie. Please refer to the more detailed information in relation to contributions.

Investments

Trustees must formulate an Investment Strategy which is intended to achieve the funding objectives of the SMSF. In purchasing investments Trustees must ensure that each purchase continues to comply with the Investment Strategy or that it has been updated to reflect their new intentions.

Depending on the nature of the investment products used by the Trustees there may also be a requirement to formulate a Risk Management Statement to formalise and formulate a management and control process.

Benefits

Trustees must ensure that benefits are paid in the correct amounts to each member in accordance with the preservation and release rules enshrined in the superannuation law.

Administration Arrangements

There are a number of administrative and reporting tasks that must occur throughout the year in relation to the operation of an SMSF. Trustees must ensure that these tasks are completed on time and in accordance with superannuation law.

Understanding the Rules

As a Trustee it is expected that you understand the rules imposed on an SMSF through legislation. These rules Include the following:

  • You must act honestly in all matters concerning your fund.
  • You must exercise skill and diligence in managing your fund
  • You must act in the best interest of all members
  • You must keep the money and assets of your superannuation fund separate from other money and assets (for example: your personal assets)
  • You must retain control of the assets of your SMSF
  • You must develop and implement an investment strategy
  • You can’t enter into contracts or behave in a way that hinders you or other trustees from performing or exercising functions or powers
  • You must not allow members, or allow others, access to funds early
  • When paying out benefits you must ensure that the members have met a condition of release