The governing legislation for SMSFs is the Superannuation Industry (Supervision) Act 1993 (Cth), commonly referred to as the SIS Act.
The sole purpose test requires that SMSFs are maintained for the purpose of providing benefits to members upon their retirement, or to their dependents 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.
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 where they are allowed to access their super. View a preservation age chart here
the member’s death, and the benefits are provided to their dependents, 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 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
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 SMSF rules and the approval of the appropriate regulator.
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.
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
certain amounts of an overseas transfer.
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
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.
Next: SMSF tax basics
Things you should know.
The information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. Any taxation consideration outlined in this presentation are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. Any super law considerations or comments outlined above are general statements only, based on an interpretation of the current super laws, and do not constitute legal advice. The tax implications of the relevant products mentioned in this presentation can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.
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