1. What is a self managed superannuation fund (SMSF)?

An SMSF has less than 5 members; each individual trustee of the fund is a fund member; each member of the fund is an employee of another member of the fund, unless those members are related; and no trustee of the fund receives remuneration for his or her services as a trustee. Complying SMSF are taxed at a rate of 15% while a non-complying superannuation fund is taxed at 47%. For complying SMSF contributions are also taxed at 15%.

2. Setting up a SMSF

There are a number of trust law and legislative requirements involved in setting up an SMSF. They include obtaining a trust deed, appointing trustees; electing to become a regulated fund; and obtaining a TFN and ABN. The trust deed may set out the following:

• Details of who can be a trustee
• How to appoint & remove a trustee
• Decision making powers of trustees
• Who can be a fund member
• Who can make contributions
• When to pay benefits to members
• Procedures for winding up the fund

3. Trustee duties

The trustee of an SMSF must act in accordance with clauses of the superannuation fund trust deed; the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA) and other general rules. SISA covenants binding trustees to:

• Act honestly in all matters
• Exercise the same degree of care, skill and diligence as an ordinary prudent person
• Act in the best interests of the fund members
• Keep the assets of the fund separate from other assets
• Retain control over the fund
• Develop and implement an investment strategy
• Allow members access to certain information
• Who is responsible for Audit / Return preparation and lodgment

4. The sole purpose test

The object of the sole purpose test is to ensure that regulated superannuation funds are maintained for the purpose of providing benefits to fund members upon their retirement, or their dependants in the case of a member's death.

5. Accepting contributions

It is important that trustees are aware of the minimum standards relating to the acceptance of contributions under SISA. These standards are designed to ensure that contributions are made for retirement purposes only. Accepting contributions:

• Mandated employer contributions
• Member's own contributions
• Eligible spouse contributions
• Superannuation for life: Child accounts
• Baby bonus contribution
• In specie contributions
• Roll-over and transfers

6. Managing Investments

A key area of responsibility for trustees of an SMSF is investment management. SISA places certain duties and responsibilities on trustees when making investment decisions. They aim to protect and increase member benefits over time for retirement purposes.

• Investment strategies
• Investment restrictions
• Changes in the investment rules
• Transitional rules

7. Paying benefits

A member's benefit in a fund may only be paid by being 'cashed' in accordance with the requirements of SISA. The payment standards of SISA work with the sole purpose test and the preservation rules to ensure monies in the fund are only paid to members in appropriate circumstances.

• When can/must benefits be cashed?
• What are the conditions of release?
• Roll-overs and transfers
• Reporting requirements

8. Administrative obligations

There are a range of administrative obligations imposed on SMSFs. Trustees is responsible for ensuring these obligations are met. Failure to do so may result in the trustees being fined and may also jeopardise the fund's eligibility for tax concessions.

• Annual returns & other lodgment requirements
• Annual income tax & SISA compliance returns
• Superannuation surcharge
• Reasonable benefit limits (RBLs)
• Supervisory levy
• Record keeping requirements
• Annual audit
• Winding up

9. ATOs compliance approach

Superannuation funds with fewer that 5 members now have the opportunity to be truly self managing. All SMSF members are obliged to be involved in the decision making process of the fund and share responsibility with the other trustees for the protection and appropriate investment of the member's retirement benefits.