This is a general overview of running a self-managed super fund.
Roles and Responsibilities
Trustees of a running SMSF have certain roles and responsibilities. As noted by the Australian Taxation Office (ATO) trustee declaration form, by law trustees must:
- Act honestly in all matters concerning the fund.
- Exercise skill, care and diligence in managing the fund.
- Act in the best financial interests of all the members of the fund
- Keep records of decisions made about the running of the fund, including the appointment of professional advisers and the retirement of members and payment of benefits.
- Ensure that individual’s personal money and other assets are kept separate from the money and other assets of the fund.
- Take appropriate action to protect the fund’s assets.
- Refrain from entering into contracts or do anything that would prevent or hinder in properly preforming or exercising the functions or powers as a trustee or director of a corporate trustee of the fund.
- Allow all members of the fund to have access to information and documents as required, including details about: the financial situation of the fund, the investments of the fund and the members benefit entitlements.
Further by law the trustee must, prepare, implement and regularly review an investment strategy having regard to all the circumstances of the fund, which include, but not limited to:
- The risks associated with the fund’s investments.
- The likely return from investments, taking into account the fund’s objectives and expected cash flow requirements.
- Investment diversity and the fund’s exposure to risk due to inadequate diversification
- The liquidity of the fund’s investment having regard to the fund’s expected cash flow requirements in discharging its existing and prospective liabilities
- Whether the trustee of the fund should hold insurance cover for one or more members of the fund.
Accepting contributions and rollovers
Cash contributions, in-species contributions or rollovers are the starting point for establishing a member’s initial balance. Contributions can be distinguished between concessional and non-concessional. Since contributions are subject to caps and can be limited by a members total superannuation balance. Also contributions can also be restricted by age and employment status.
Above all there are two main categories of contributions, mandated employer contributions and non-mandated contributions. The main mandated employer contribution is super guarantee contributions. Non-mandated contributions include personal contributions made by employees, personal contributions made by self-employed people and other personal contributions.
In-specie contributions are contributions to your fund in the form of an asset, rather than money or cash.
Over the years contribution caps have changed. Currently the concessional contribution cap is $27,500. After all there is the ability to use carry forward un-used concessional amounts from the previous 5 years. This was enacted from 1 July 2018. The ability to use the carry forward un-used concessional amounts is also subject to a members total super balance as at the prior 30 June being below $500,000.
The non-concessional contribution cap is currently $110,000 for the 2023 Financial Year. Another keypoint is the non-concessional cap is subject to a 3 year bring forward rule. An eligible individual can contribute $330,000 of non-concessional contributions. Currently the total superannuation balance of a member as at the prior 30 June must be below $1.7m to make any form of non-concessional contribution.
Trustees need to allocate contributions to a members account within 28days after the end of the month in which the contribution was received.
Afterwards when a member is claiming a deduction for a personal contribution, the member should give a valid notice of intent to claim a deduction. The notice is required to be given by the earlier of the following:
- The time the member lodges their personal income tax return
- The end of the financial year following the year the contribution was made
The trustee of the fund will then acknowledge the notice of intent to claim.
Managing the fund’s investments
Trustees of the fund have a responsibility to manage the funds investments. The trustees are required to formulate, implement, and regularly review an investment strategy.
To reduce the level of risk that members benefits are exposed to, restrictions are placed on certain types of investments the fund can invest in and the entities that your fund can acquire assets from.
Failure to comply with the investment rules can result in a fund losing its complying status and the trustee be subject to sanctions and/or prosecutions.
Paying benefits to members
Superannuation benefits in running a SMSF can be paid as one or more lump sum payments or as one or more income streams. In the case of a death of a member the death benefits may be paid to the deceased members beneficiaries.
Generally, to access superannuation you must attain preservation age and have satisfied a condition of release. The preservation age is the minimum retirement age at which you are eligible to access superannuation benefits. Currently for those born from 1 July 1964 the preservation age is 60. The main condition of release is attaining the age of 65, or retirement from gainful employment between the age of 60-65.
There are multiple conditions of release, such as temporary incapacity, severe financial hardship, compassionate grounds and temporary residents departing Australia.
Reporting and administration obligations
Self Managed Superannuation Funds are required to be audited each financial year. As an illustration trustees are required to appoint an approved auditor to audit the fund at least 45 Days before the due date of the SMSF annual return. Because the auditor must form an opinion that the financial statements are a fair representation of the financial position of the fund and the SMSF has complied with the relevant superannuation law.
Tax lodgement dates of the SMSF annual return will depend on if the fund is a self-preparer or using a tax agent. \for self preparers the lodgement date is 31 October or 28 February, depending if the fund is new or the prior year was lodged late. Also for running SMSF lodged by a tax agent generally 15th May will be the lodgement date. The annual tax return reports income tax, super regulatory information and member contributions.
As a matter of fact events that affect a member’s transfer balance account must be reported by a SMSF to the ATO. Common events are, starting an income stream and commutation of a retirement phase income stream.
SMSF are required to keep for a minimum of 5 years:
- Accurate and accessible accounting records that explain the transactions and financial position of your SMSF
- An annual operating statement and an annual statement of your SMSF’s financial position
- Copies of all SMSF annual tax lodgements
- Copies of any other statements you are required to lodge with the ATO
SMSF are required to keep the following records for a minimum of 10 years:
- Minutes of trustee meetings and decisions
- Records of all changes of trustees
- Trustee declarations recognising the obligations and responsibilities for any trustee, or director of a corporate trustee, appointed after 30 June 2007
- Members written consent to be appointed as trustees
- Copies of all reports given to members
Another key point the ATO should be notified within 28 days if there is a change in:
- Trustees
- Directors of the corporate trustee
- Members
- Contact details
- Address
- Fund status
The ATO is the regulator of the SMSF sector. The ATO administer the relevant super laws, they check compliance with the law to safeguard retirement income.
Certainly The information provided on this website is general in nature. You should consider seeking independent financial advice from a licensed financial adviser if you are considering setting up and running a SMSF.
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