Managing your own self-managed super fund (SMSF) offers significant control over your retirement savings, potential cost savings, and tailored investment opportunities. With over a million Australians choosing this route, SMSFs are increasingly popular. However, they come with stringent SMSF trustee responsibilities that require careful management and a thorough understanding.
As an SMSF trustee, you are legally and financially accountable for your fund’s operations. To help you navigate this responsibility, here are seven essential areas you must understand:
1. Determine if an SMSF is right for you
Before establishing an SMSF, ensure it’s the best choice for your circumstances. SMSFs demand time, financial commitment, and a readiness to manage legal and administrative tasks.
Key considerations:
-
Costs: SMSFs come with setup, administration, legal and tax advice, audit, investment and wind-up fees. There is no legal minimum requirement, but research* has found that SMSFs with balances under $200,000 are likely to achieve considerably lower net investment returns compared with funds with balances over $200,000. However, your circumstances may require more.
- Diversification: Sufficient funds are needed to spread investments and manage risk effectively.
- Expert guidance: Professional advice can clarify whether an SMSF aligns with your goals.
Consider all superannuation options before you decide to manage your own fund. Running an SMSF isn’t for everyone. If you lack the time, knowledge, or support, other superannuation options may be more suitable.
2. Understand the SMSF framework
Your role as a trustee includes adherence to the fund’s trust deed and selection of an appropriate fund structure. Both are critical elements in fulfilling your SMSF trustee obligations.
Fund structure:
An SMSF can have individual trustees or a corporate trustee. Each structure has unique legal and administrative implications. Learn more about these options through the ATO’s guidance.
Trust deed:
Your fund’s trust deed is a critical legal document that establishes the fund and outlines operational rules, such as investment strategy and benefit payments. Engage a qualified professional to prepare it, but ensure you understand its content and how it governs your fund.
3. Comply with superannuation regulations
Compliance is non-negotiable. Your obligations as an SMSF trustee include superannuation, tax, and trust law obligations under, but not limited to:
- Superannuation Industry (Supervision) Act 1993 (SISA)
- Superannuation Industry (Supervision) Regulations 1994 (SISR).
- Income Tax Assessment Act 1997 (ITAA 1997).
- Corporations Act 2001.
Key compliance duties:
- Annual returns and audits: Arrange for an approved SMSF auditor and lodge your fund’s annual return with the ATO.
- Record-keeping: Maintain accurate records, including trustee decisions, financial accounts, and tax returns.
- Fund administration: Many trustees engage professional administrators to streamline these processes.
- Asset valuations: Ensure all assets are valued at their market values when preparing annual financial accounts, commencing pensions, or transferring between the SMSF and related parties.
- Benefit payments: Members must satisfy a legal condition of release to withdraw money from the fund.
Although professionals can assist, ultimate responsibility lies with you as the trustee. Choose reputable service providers to ensure compliance and effective fund management.
4. Prioritise the sole purpose of the fund
SMSFs must be maintained solely to provide retirement benefits to members or their dependants. Breaching this “sole purpose test” can result in loss of tax concessions and legal penalties.
Common breaches to avoid:
- Using SMSF assets for personal benefit (e.g., private use of property or artwork owned by the fund).
- Mixing SMSF assets with personal or business funds.
The ‘sole purpose test’ is a cornerstone of SMSF law and is designed to protect your retirement savings. To remain compliant, ensure all fund decisions are aligned with retirement-focused objectives and documented accordingly.
5. Develop and monitor your investment strategy
An SMSF gives you control over investments, but decisions must adhere to your trust deed, investment strategy, and legal obligations. Adopting a robust investment strategy that aligns with legal requirements and members’ goals is a cornerstone of effective SMSF management. Regularly review your strategy to ensure compliance and optimal performance.
Key steps:
- Define objectives: Align investments with members’ retirement goals and circumstances.
- Diversify: Spread risks across asset classes such as shares, property, and cash.
- Insurance: Consider whether your SMSF will hold insurance cover (such as life, permanent, or temporary incapacity insurance) for each member.
- Review regularly: Adjust your strategy as financial markets or member needs change.
Poor investment choices can lead to significant financial and legal consequences. Consider seeking advice to enhance your knowledge and confidence as an investor.
6. Stay within contribution limits
SMSF contributions must meet legal standards, including caps that limit how much you can contribute annually. Adhering to the contribution rules outlined in your trust deed is another critical component of your SMSF trustee responsibilities.
Avoid common pitfalls:
- Exceeding the ‘concessional contributions cap’, which can incur excess tax penalties.
- Failing to monitor contributions in real-time, as SMSFs often operate with delayed administration.
The trust deed of your fund may have more rules regarding contributions.
Working with professionals who track your contributions throughout the year can help you avoid these issues.
7. Adapt to changing circumstances
SMSF trustees are responsible for regularly reassessing the fund’s structure, strategy, and compliance in response to evolving circumstances.
Examples of changes to monitor:
- Members’ situations: Circumstances including retirement, relationship breakdowns, overseas travel, or loss of mental capacity can impact fund operations.
- Legislation: Stay informed of regulatory updates that may affect your fund.
- Retirement readiness: Plan for benefit payments or fund wind-up when members retire.
Conclusion
SMSFs offer unmatched flexibility and control, but they come with substantial responsibilities. Meeting your SMSF trustee responsibilities is essential to protect fund assets and ensure compliance. With proper planning and professional support, running an SMSF can be a rewarding way to manage your retirement savings.
Contact us to learn how we can help you stay compliant and maximise your SMSF’s potential.
* ASIC Report 575: SMSFs: Improving the Quality of Advice and Member Experiences (2018); Productivity Commission Report on Superannuation: Assessing Efficiency and Competitiveness (2018)