Australians are falling in love with self managed super, and understandably so. But a number of boxes need to be checked in order for an SMSF to be truly considered an SMSF for taxation purposes, and with an increasing number of people beginning to open their own funds, it’s important to make sure that you and the Australian Taxation Office (ATO) are on the same page.
The latest ATO statistics show that the number of SMSFs continue to grow with over 36,000 set up in 2012 alone, up 9% on 2011. As at June, there were over 478,000 SMSFs, holding $439 billion in assets.
When you consider this continued growth you can understand why qualifying as an SMSF is so important.
Does your fund qualify?
To qualify as an SMSF, an entity must be considered to be a ‘superannuation fund’ and come within the definition of an SMSF as provided in section 17A of the Superannuation Industry (Supervision) Act 1993 (SIS Act). That section basically says that an SMSF must meet the following criteria:
- it has fewer than five members
- each individual trustee or director of the trustee company is a member of the fund
- each member of the fund is an individual trustee or director of the trustee company
- no member of the fund is an employee of another member, unless those members are related
- no individual trustee or director of the trustee company receives remuneration for services as a trustee
If your fund fails to meet all these conditions, it will not be considered a complying superannuation fund, which means you won’t receive any of the tax benefits of super.
Understanding your role
Within an SMSF, the members of the fund have two roles: one as a member and the other as a trustee. The fund must be maintained for the benefit of its members, who will each have an account in the fund. The objective of the fund is to grow the benefits during the members working life to provide income in retirement.
The trustee is the person (or company) ultimately responsible for both the investment decision making and the administration of the fund. Trustees are the key decision makers with the overall and ultimate responsibility for the fund. The trustees could be members, or a company could be set up to act as a trustee with the members of the fund as directors.
There is a legal requirement for an SMSF that every member must be a trustee and every trustee must be a member. If the trustee of the fund is a company then every member must be a director of the company and every director a member of the fund.
Different rules apply if there is only one member of a fund.
Example
Jack and Jill establish the XYZ Superannuation Fund. They are both members of the SMSF. Jack and Jill could choose to act as individual trustees of their SMSF or they could put in place a corporate trustee. If they chose to have a company as the trustee both Jack and Jill would need to be the directors of that company. They choose to use a company as trustee.
If Jill ceased to be a member of the fund and Jack was the sole remaining member then Jack could continue as trustee of the fund. As the trustee of the fund is a company, Jack could be the sole director of the trustee company or he could appoint another director. This appointed director would need to be a relative or another person who is not employed by Jack.
You will need to choose the best way to structure your SMSF so it complies with superannuation law and suits you and other members’ circumstances.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.
