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If you want to run your own self-managed super fund (SMSF), there are some administrative tasks you need to complete before you can get onto the more exciting business of investing. One of these tasks is to draw up a trust deed.
What is an SMSF trust deed?
An SMSF trust deed is a legal document that outlines how the super fund will be set up and how it will operate. An Australian SMSF must be established with a trust deed that complies with Australian superannuation legislation.
Why is a trust deed necessary?
An SMSF must be set up as a trust. A trust is a legal structure where an individual or company trustee holds assets in trust for the benefit of others (the beneficiaries).
A super fund is a special type of trust, set up and maintained for the sole purpose of providing retirement benefits to its members (the beneficiaries). An SMSF trust must be set up correctly to enjoy the tax benefits of super.
SMSFs are regulated by the Australian Taxation Office (ATO), which monitors their compliance with super legislation and can impose a range of penalties for non-compliance.
The four essential requirements for establishing a trust are:
- A trust deed.
- An SMSF can have up to six members from 1 July 2021 (previously the maximum was four).
- Every member of an SMSF must also be a trustee of their fund or a director of a corporate trustee. SMSF trustees are responsible for managing the fund to ensure its compliance with Australian super legislation.
- An asset (or assets). SMSFs can be started with a nominal amount (for example $10) that is allocated to a member or members of the fund. Alternatively, the pre-existing super balances of members in other super funds (such as retail or industry funds) can be rolled into an SMSF as its initial assets.
What information is included in the deed?
Information contained in an SMSF trust deed will typically include:
- The names of the members and individual trustees (or the names of the fund’s directors if the fund has been set up with a corporate trustee structure).
- The objective of the SMSF. All Australian super funds (including SMSFs) must be set up for the sole purpose of providing retirement benefits to fund members (or to their dependants when they die).
- Rules that allow the trustees or directors to implement the fund’s investment strategy. Trustees/directors must also document an investment strategy as part of the SMSF set-up process. The trust deed should outline the specific types of investments that the trustees/directors can make.
- Rules that outline how the fund will be administered, how member benefits will be paid (as a lump sum or pension), and the circumstances in which the fund will be wound up.
Where can I get an SMSF trust deed?
If your SMSF needs are reasonably straightforward, you can purchase standard SMSF trust deeds online.
However, if your SMSF arrangements are likely to be more complex or you would value the oversight of an expert, it is advisable to hire an experienced professional to help you prepare your fund’s trust deed. This will help to ensure it complies with super legislation.
It’s also important that all trustees/directors are involved in discussions during the preparation of the deed, so there is a clear agreement and understanding of how the fund will be managed right from the start.
SMSF trust deeds are not subject to stamp duty, except in Tasmania and the Northern Territory where nominal fees are charged.
When do I need to update the trust deed?
Ideally, an SMSF trust deed should be written in a way that doesn’t require regular updating. However, the deed should be reviewed at least annually to ensure it’s up to date with:
- Fund changes such as adding or removing members
- Changes to super legislation.
For example, the Transfer Balance Cap introduced in July 2017 has affected how super funds (including SMSFs) can operate. This cap is the maximum amount that can be transferred to an eligible member’s tax-free pension account and is currently $1.7 million, up from $1.6 million prior to 1 July 2021.
SMSF trust deeds potentially need updating for this change to give trustees the power to ‘rollback’ excess pension funds into their member’s accumulation accounts (if they don’t already have this power).
In addition, concessional (before tax) and non-concessional (after tax) caps on super contributions are indexed periodically. These cap changes affect the maximum amounts that SMSF members can contribute to their fund each year. The annual concessional contributions cap was increased from $25,000 to $27,500 from 1 July 2021. The annual non-concessional cap was increased from $100,000 to $110,000.
SMSF trust deeds may need updating for these changes to reflect how any excess contributions will be handled by the fund (if this isn’t already outlined in the trust deed). For example, whether they would be:
- Rejected and refunded, or
- Accepted and any member will pay additional tax for exceeding the contributions cap.
What about minor updates?
A review of an SMSF trust deed may reveal minor updates that need to be made, such as typographical errors. For example, a member’s name might be spelled incorrectly (or their middle name omitted) or the deed may contain an incorrect date. A deed of variation can be used for minor updates like these, rather than drafting an updated trust deed document.
A deed of variation can highlight any simple trust deed errors along with the correct information. It should be prepared and signed by all trustees/directors for minor updates and simply attached to the existing SMSF trust deed.
How do I update my trust deed?
Updates to SMSF trust deeds (and the preparation of deeds of variation) should be handled by experienced professionals to ensure compliance. The cost will depend on the extent of the update. Minor variations will obviously be less expensive.
What happens if I lose my trust deed?
SMSF trustees/directors are required to retain the original hard copy of their fund’s trust deed (and any subsequent updates or deeds of variation) while their fund is in operation and for a period of five years after the fund’s final annual tax return is submitted to the ATO. It should be kept in a secure place along with your other important documents.
Government departments and courts will usually not accept printed or digital copies, as they are not the original documents. However, you might consider saving a digital copy to the cloud for easy reference.
If you lose your trust deed, you should try to find it! While this is an obvious step, make sure you leave no stone unturned. For example, contact any third-party professionals that may have the original (or at least a copy of it). Those professionals could include your lawyer who helped you prepare it, or your accountant or financial planner.
Finding a copy will at least help you prepare a new original and cut down the associated time and cost of doing that. But if you genuinely can’t find your SMSF trust deed, it’s best to prepare a new one to ensure your ongoing compliance.
A trust deed is a legal document you must prepare if you want to run your own SMSF. It outlines how your fund will be set up and how it will operate. The deed should be regularly reviewed by fund trustees to ensure that it’s up to date.
You should seek independent professional advice when preparing and updating your SMSF trust deed to ensure your fund’s compliance with Australian superannuation legislation. The information contained in this article is general in nature.