Your responsibilities as a self-managed super fund (SMSF) trustee are directly linked to superannuation law, tax law, corporations law or trust law. Generally, SMSF trustees must consider at least 9 super compliance must-dos.
If you run an SMSF, you must follow the super laws and tax laws in particular, or risk losing tax concessions and/or being hit with financial penalties or corrective orders.
As an SMSF trustee, you must act in line with the following legal documents and laws:
- Your fund’s trust deed: As a trustee, you must act in accordance with your trustee responsibilities as set out in your fund’s trust deed. The trust deed is your fund’s rule book (see SuperGuide’s special section on trust deeds).
- Trust law: Your SMSF is a trust, evidenced by your fund’s trust deed, which means your fund is subject to trust law. As trustee, you’re subject to general trustee duties, some of which are listed in the SMSF trustee declaration that you sign when you become a SMSF trustee (see SuperGuide article Guide to the SMSF trustee declaration).
- Super laws: The superannuation laws are set out in the Superannuation Industry (Supervision) Act 1993 (or SIS Act), the main legislation governing super, and the associated Superannuation Industry (Supervision) Regulations 1994. The SIS Act also imposes minimum requirements on trustees, which are general trustee duties under law (refer to the preceding point), and these duties are deemed to be included in a SMSF’s trust deed.
- Tax laws: You can find the main tax laws relating to superannuation in the Income Tax Assessment Act 1997 and the Tax Administration Act 1953, although your fund is subject to other tax laws, too.
- Corporations law: If you have a corporate trustee, your fund is subject to the Corporations Act 2001, and must report annually to the Australian Securities & Investments Commission (ASIC). As a corporate trustee, you must also follow your company’s constitution. ASIC also oversees approved SMSF auditors, the service providers appointed to annual audit SMSFs.
Monitoring the 9 SMSF must-dos
As a SMSF trustee, you must follow special rules that generally cover 9 main areas of compliance:
- SMSF definition: Your SMSF must have fewer than five members, and all members must be trustees (or trustee directors, if your fund has corporate trustee) of the SMSF. A SMSF member can’t be an employee of another member unless they’re relatives, and no SMSF trustee can receive payment for performing the role of trustee. An SMSF must not be a disqualified person, and must also satisfy residency rules (see SuperGuide articles What is a self-managed super fund (SMSF), and how does it work? and Guide to SMSF residency requirements).
- Administrative and reporting obligations: Your fund must meet its administrative and reporting obligations, including lodging SMSF returns by the due date, appointing an approved SMSF auditor, and reporting on the transfer balance cap requirements (if applicable) (see SuperGuide articles SMSF compliance: Is your fund due for a super service? and SMSF audit: you must appoint an approved SMSF auditor and Compliance alert! 85% of SMSFs exempt from quarterly event-based reporting.
- Trustee declaration: A new SMSF trustee must sign a statement, called the SMSF trustee declaration, confirming that the trustee understands the responsibilities and duties involved in running a SMSF (see SuperGuide articles Guide to the SMSF trustee declaration and Guide to the SMSF trustee declaration).
- Sole purpose test: Your super fund is set up for the sole purpose of providing retirement benefits to members, rather than, for example, providing an antique roadster for weekend driving (see SuperGuide article SMSF basics: Trish’s 10 commandments of DIY super).
- Super contributions rules: You must satisfy the super contributions rules, for example, if a member is aged 65 years or over, they must satisfy a work test before contributing. You must keep your annual super contributions within the contributions caps (unless you are willing to accept the financial and administrative consequences) (see SuperGuide articles Super concessional (before-tax) contributions: 2018/2019 survival guide and Your 2018/2019 guide to non-concessional (after-tax) contributions.
- Investment strategy and investment restrictions: As SMSF trustee, you must formulate and implement an investment strategy for your fund, and regularly review this strategy. You also must be mindful of the special investment restrictions applicable to super funds when making your fund’s investments (see SuperGuide articles SMSF audit: Where is your fund’s trust deed and investment strategy? and SMSF compliance: Is your fund due for a super service?).
- Benefit payment rules: You must comply with the superannuation benefit payment rules; for example, ensuring a condition of release is satisfied before paying a lump sum or pension from your super fund (see SuperGuide article What is the retirement age in Australia?).
- Transfer balance cap: Since 1 July 2017, there is a limit to how much super an individual can transfer into retirement phase, which has created more compliance work for SMSF trustees (see SuperGuide articles Retirement phase: A super guide to the $1.6 million transfer balance cap and Compliance alert! 85% of SMSFs exempt from quarterly event-based reporting).
- Approved SMSF auditor: You must appoint an approved SMSF auditor, registered by ASIC, to conduct two audits — a financial audit and a compliance audit — on your SMSF, at the end of each year (see SuperGuide article SMSF audit: you must appoint an approved SMSF auditor).
Penalties may apply if you drop the ball on SMSF compliance
The ATO can impose three types of penalty:
- Administrative penalty: A financial penalty.
- Rectification direction: An order to fix something that you caused by breaking the super rules.
- Education direction: An order to undertake an approved course to re-educate yourself about the super laws.
For more information on administrative penalties, see the SuperGuide article What are the penalties for SMSF non-compliance?
For more information on SMSF compliance
- SMSFs: The 12 most common mistakes made by trustees
- SMSF basics: Trish’s 10 commandments of DIY super
- SMSFs: Driving your super C-A-R-T obligations
- SMSF compliance: Is your fund due for a super service?
- SMSF advice: Is your accountant still allowed to help your fund?
- What to consider when looking for an SMSF provider