Self Managed Super Fund Rules and How They Benefit the Process
Without rules, any business, institution, and society in general would be in chaos. The same goes for the rules that represent the building blocks of self managed super funds’ sturdy foundation. Not only is this important for successfully managing the fund, but also for avoiding being subject to penalties. So as a member, it is mandatory to understand Self Managed Super Fund rules.
An SMSF is a private superannuation fund, that is made up from no more than four members known as trustees. The fund is regulated by the Australian Taxation Office (ATO) and managed by its members. Here are some simple and straightforward Self Managed Super Fund rules that define the purpose behind it:
- When the fund is composed of several trustees, each individual in the SMSF must be a trustee. The only exception is in a single member fund;
- When it is made from a corporate trustee, each assigned director of the corporate trustee must be a member. The only exception applies when the fund is made from only one corporate trustee;
- Each trustee is a member of the fund, or each corporate trustee is a director;
- Members of the fund must not work for another member of the fund. The exception is when the two members are relatives.
Many of the Self Managed Super Fund rules, especially the restrictive ones, are meant for the related parties of the trustees. A trustee is defined as a person who is to receive pension from the SMSF or an individual who is qualified to invest in the fund in the accumulation phase. The related parties can be a current or former partner, kids, grandparents, aunt, uncle or any other family member. Additionally, it includes relationships such as adoption or remarriage.
The Superannuation Industry Act, which is the supervision body, has set out the minimum rules that all SMSF members must follow.
- Every trustee must act honestly to all trustees regarding all things that affect the fund;
- Everyone must act in the best interests of the SMSF and all the beneficiaries;
- The fund must keep all assets separate;
- All the trustees must formulate and implement the planned investment strategy;
- The reserves must be managed responsibly;
- The SMSF must grant all beneficiaries access to any information regarding the fund;
- Trustees are allowed to take any action permitted by the SIS Act.
Members of the SMSF can create trust deeds, which are beneficial to the fund. However, the deed cannot clash with the SIS Act. For instance, you cannot create trust deed that reduces the entitlement of a certain member.
The main purpose of an SMSF is to provide benefits for each trustee after their retirement. Also, an SMSF can provide benefits to any relatives of trustees that passed away. Although, this is viable only if the death occurred after he retired and reached 65 years of age.
The SMSF can lose its status in two scenarios: when it is no longer an Australian super fund or fails the compliance test. The latter occurs when the SMSF has breached one or more of the rules from the SIS Act. The ATO will then determine whether the seriousness of the fault is fatal and whether they are to issue a notice of non-conformity. Smaller breaches don’t have so dire consequences, however, the SMSF fund is a subject to a lot of restrictions when it comes to borrowing, lending and acquiring assets.
Knowing the rules of the game makes playing it easier. Hopefully, this brief introduction to the rules of SMSF will render your set up process easier.