SELF-MANAGED SUPER FUND GUIDE 2017
The parts to an SMSF
Chapter 1 - What is an SMSF?
A SMSF is a special type of trust. A trust is a legal arrangement in which the legal ownership of an asset is separate to the beneficial ownership. The legal owner of an asset is responsible for it. For example, the legal owner of a bank account is responsible for any money saved within that bank account. The beneficial owner of an asset is the person for whose benefit that asset is maintained. For example, the beneficial owner of a bank account is the person for whose benefit any money held within that account is intended to be used.
Most superannuation funds, both managed and self-managed, operate via a trust. Trustees are the legal owners of the trust assets. Fund members are the beneficial owners of those assets.
There are many different kinds of trust. Many businesses, for example, operate through some form of trust, often using a company as the trustee. Private investors might make use of an investment trust. A testamentary trust is a trust that is created when a person dies and wishes to have their assets managed on behalf of their beneficiaries (for example, if their beneficiaries are still children and can’t manage assets themselves).
A self managed super fund is a special type of trust. It is special because the trust assets are held and managed by a trustee for the purpose of providing retirement income and other benefits to members. This means the trust qualifies for special income tax concessions under the tax law.
A SMSF is a super fund with less than five members that is managed by its members. SMSFs are also known as ‘DIY funds.’ The Australian Taxation Office (“the ATO”) is the main SMSF regulator, and has the responsibility of overseeing SMSFs in Australia.
The members, or a company owned and controlled by the members, act as the trustees. The trustees control the SMSF’s investments and are generally responsible for the SMSF’s administration and its compliance with the law.
A SMSF is controlled by a trust deed. The trust deed sets out the rules the SMSF has to follow. It also sets out the obligations and responsibilities of the people connected to the SMSF, ie the members and the trustees. The rules for paying contributions on retirement or death, investing assets, holding meetings, appointing trustees, paying benefits to members and the other matters affecting the SMSF are also found in the trust deed.
THE PARTS TO AN SMSF
The three essential parts of a trust are present in a SMSF. These are:
trust property; and
beneficiaries, in this case called “members”.
The trust deed must have special rules if the SMSF is to be a complying super fund and be eligible for tax concessions. However, it is the trustee’s year-to-year conduct that ultimately determines the SMSF’s eligibility for tax concessions.
To be a SMSF the fund must be a super fund and must also satisfy a number of conditions set out in section 17A of the SIS Act. These conditions are:
the fund must have no more than four members;
if the trustees of the fund are individual persons, each of them must be a trustee;
if the trustee of the fund is a company, each member must be a director of that company;
the members are not in an employment relationship unless they are relatives;
no trustee derives any personal benefit from providing services to the fund or for performing his/her/its duties as a trustee.