It is important for everyone to plan for their retirement. This includes reviewing your existing superannuation arrangements. Business owners are increasingly using a self managed superannuation fund (SMSF) as an integral part not only of their retirement planning but also, as part of their estate planning.
The difference between a SMSF and other types of super funds (retail and industry) is simple. The members of a SMSF are usually also the trustees of the SMSF. As trustees, the members of the SMSF run it for their own benefit, make the investment decisions, and are responsible for complying with taxation and superannuation laws.
A SMSF is established for the sole purpose of providing retirement benefits for its members or their dependents. The SMSF’s investments are to be managed in the best interests of the members and in accordance with the law. The SMSF’s investments are separate from the personal and business affairs of SMSF members.
Setting up a SMSF
It is important your SMSF is set up correctly so that the SMSF is eligible for taxation concessions, can receive contributions and is easy to administer. There are a number of considerations to be made before you set up a SMSF.
To create a SMSF, you need:
- Assets. Initially, this can be a nominal consideration to give legal effect to the SMSF, e.g. $10 attached to the trust deed;
- Identifiable beneficiaries (members). A SMSF can only have a maximum of 4 members;
- The intention to create a trust.
When appointing trustees, there are 2 options:
- Individual Trustees. A maximum of 4 individual trustees can be appointed. If you are setting up a single member SMSF, a minimum of 2 individual trustees must be appointed. Each member of the SMSF must be a trustee, and each trustee must be a member of the fund, unless it is a single member SMSF; or
- Corporate Trustee. Each member of the SMSF must be a director of the company, and each director of the corporate trustee must be a member of the SMSF, except single member SMSF.
The trust deed
A superannuation fund is a particular type of trust, which is set up and maintained for the sole purpose of providing retirement benefits to its members (beneficiaries).
The trust deed is a legal document which sets out the rules for establishing and operating your SMSF. The trust deed will include such things as the SMSF’s objectives, who can be a member, and whether benefits can be paid as a lump sum or by income stream (pension). The SMSF is governed by the trust deed and superannuation laws together.
The trust deed must be:
- Prepared by a person qualified to do so i.e. a solicitor;
- Signed and dated by all trustees;
- Properly executed in accordance with legislation;
- Regularly reviewed, and updated as necessary.
A SMSF can accept contributions and rollovers for its members from various sources. However, there are some restrictions, mostly depending on the member’s age and the contributions caps.
There are minimum standards for accepting contributions into your SMSF. The trust deed may also set out more rules regarding acceptable contributions. Whether a contribution is acceptable depends on:
- Whether you have the member’s tax file number. If you do not, the SMSF is unable to accept the member contributions;
- The type of contribution;
- The age of the member;
- Whether the contribution exceeds the member’s fund-capped contributions limit.
Also, while generally a SMSF is unable to accept an asset as a contribution from a member, there are exceptions.
Your SMSF may also need an electronic service address to receive the associated SuperStream data when receiving contributions from employers (other than related-party employers).
All contributions and rollovers are to be:
- Properly documented, including the amount, type and breakdown of components;
- Allocated to the member’s accounts within 28 days of the end of the month in which you receive them.
Once your SMSF is set up, there are a number of ongoing obligations which need to be met in order to comply with superannuation and taxation laws. You must:
- Keep proper and accurate taxation and superannuation records;
- Appoint an approved SMSF auditor to audit the SMSF annually, at least 45 days before you are required to lodge your SMSF annual return with the Australian Taxation Office;
- Lodge a SMSF annual return with the Australian Taxation Office once the audit is finalised;
- Notify the Australian Taxation Office within 28 days of any change in trustees, directors of the corporate trustee, members, contact details and address of the SMSF, and or change in SMSF status.
Also, your SMSF must be an Australian super fund at all times during the financial year.
Failure to meet your obligations may result in the non-compliance with superannuation and taxation obligations by your SMSF. This can result in the Australian Taxation Office imposing penalties on the individual trustees or corporate trustee.
Paying member benefits
Generally, a SMSF can only pay a member’s superannuation benefits when the member reaches their ‘preservation age‘ and meets 1 of the conditions of release, i.e. retirement.
A SMSF can pay benefits in the form of an income stream (pension), lump sum, or a combination of both, provided such payment is allowable under the superannuation laws and the SMSF’s trust deed.
Please note this is a general overview of SMSF. It is recommended any decision regarding setting up a SMSF is made in consultation with your financial advisor, accountant and solicitor. While planning for your retirement, a SMSF is also part of your estate planning and involves financial decisions and legal documentation.
If you would like further information about setting up a self managed super fund or amending an existing SMSF trust deed, please contact our Principal, Leigh Avuri on 0402 912 962 or by email: firstname.lastname@example.org.