Overview of key SMSF rules and regulations

2 min read

The rules and regulations that govern SMSFs are stringent. As the Trustee of your fund it is important that you understand the rules that apply. Below we overview some of the key rules you should be aware of.

Key legislation

The governing legislation for SMSFs is the Superannuation Industry (Supervision) Act 1993, commonly referred to as the SIS Act. Here are some key rules you should be aware of.

The sole purpose test

The sole purpose test requires that SMSFs are maintained for the purpose of providing benefits to members upon their retirement, or to their dependants if a member dies. As a trustee of a regulated superannuation fund, you must comply with the sole purpose test for the SMSF to be eligible for superannuation tax concessions. The sole purpose test is divided into core and ancillary purposes.

A regulated SMSF must be maintained solely for either:

  • One or more core purposes, or

  • One or more core purposes and one or more ancillary purposes.

Core purpose

An SMSF must be maintained to provide benefits for each member of the SMSF on or after at least one of the following:

  • The member’s retirement

  • The member reaching an age not less than prescribed in regulations

  • The member’s death, if the death occurred before they retired, and the benefits are provided to their dependants or legal personal representative or both

  • The member’s death, if the death occurred before they attained an age not less than prescribed in regulations, and the benefits are provided to their dependants or legal personal representative or both.

Ancillary purpose

Ancillary purposes for maintaining an SMSF are to provide benefits for members in the following circumstances:

  • Termination of a member’s employment with an employer who made contributions to the SMSF for that member

  • On the cessation of work due to ill health

  • Death of a member after retirement where the benefits are paid to their dependants or legal personal representative or both

  • Death of a member after reaching an age not less than prescribed in regulations where the benefits are paid  to their dependants or legal personal representative or both

  • Another ancillary purpose approved in writing by the regulator.

This allows an SMSF to provide benefits in situations of financial hardship and/or on compassionate grounds, subject to the SIS Act, the governing rules of the SMSF and the approval of the appropriate regulator.

Accepting contributions

As a trustee you must be aware of the minimum standards for accepting contributions under the SIS regulations. The rules become more complex from age 65 and generally require satisfaction of a work test. There are also limitations on how much can be accepted as a single contribution at any point in time.

Types of contributions

Concessional contributions are generally contributions made for you or by you for which a tax deduction is claimed and are included in the assessable income of the SMSF. They include:

  • Superannuation guarantee (SG) contributions

  • Contributions made by employers over and above the SG or award obligations, including salary sacrifice contributions

  • Payments by the ATO of SG shortfall amounts

  • Contributions paid pursuant to an award/agreement certified by an industrial authority

  • Personal contributions for which a tax deduction is claimed.

Non Concessional Contributions (NCCs) are contributions that are not assessable to the SMSF and include:

  • Personal post tax contributions

  • Spouse contributions

  • Certain amounts of an overseas transfer

  • Excess concessional contributions above the concessional contribution cap which are not refunded.

Investment restrictions

There are various restrictions and requirements placed on how an SMSF may invest its assets. These are designed to protect members’ benefits. The main ones are:

  • Sole purpose test

  • Trustee covenants concerning investment of member’s money

  • Borrowing restrictions

  • Regulations applying to investments in collectibles and personal use assets

  • General prohibition on giving a security over fund assets

  • Prohibition on loans to members

  • Non arm’s length investments

  • Acquisition of assets from related parties

  • In house asset provisions

  • Written investment strategy.

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As with other aspects of Self Managed Super Funds there are rules around who can be a Trustee or Director of the corporate Trustee of your SMSF. This article explains some of those Trustee rules.
Self Managed Super Funds can offer Tustees more control over the taxation of their superannuation however like all aspects of SMSFs there are rules that apply.
As a trustee for a Self Managed Super Fund you need to consider who will be responsible for the administration of the fund if he person currently looking after it is not around.

The information in this document has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714. The information is general in nature and does not take into account your personal needs, objectives or circumstances and therefore, before acting on this information, you should consider whether it is appropriate for you.

BT Portfolio Services Ltd ABN 73 095 055 208 AFSL 233715 (BTPS) operates BT Panorama Investments (the investor directed portfolio service operated by BTPS). BT Funds Management Limited ABN 63 002 916 458 AFSL 233724 (BTFM) is the responsible entity and issuer of interests in BT Cash and Westpac Financial Services Ltd ABN 20 000 241 127 AFSL 233716 is the responsible entity and issuer of interests in BT Managed Portfolios. An Investor Guide is available for BT Panorama Investments and a PDS is available for BT Cash and BT Managed Portfolios (the Panorama products). These disclosure documents can be obtained from BTPS by visiting www.bt.com.au/smsf or calling 1300 881 716. A person should obtain and consider the disclosure documents before deciding whether to acquire, continue to hold or dispose of interests in the Panorama products.

In addition, BTPS is the provider of the Panorama SMSF Establishment Service and the Panorama SMSF Administration Service. The Guide and Terms and Conditions for these services are available by visiting www.bt.com.au/smsf or calling 1300 881 716

BTPS, BTFM and WFSL are subsidiaries of Westpac Banking Corporation ABN 33 007 457 141 (Westpac). Apart from any interest investors may have in Westpac term deposits or securities acquired through Panorama, an investment in or acquired through Panorama is not an investment in a bank or a bank deposit. Westpac and its related entities do not guarantee an investment in or acquired through Panorama Investments.

© Westpac Banking Corporation 2016