For Adviser use only
Regulated by the Australian Taxation Office (ATO), SMSFs are treated differently from other superannuation funds and must meet additional conditions. These conditions can be found in Section 17A of the Superannuation Industry (Supervision) Act 1993 ('SIS Act').
An SMSF is a trust requiring a trustee, of which there can be two types, individual or corporate. Depending on whether the fund is a single member fund and has a corporate trustee or not, the following conditions are placed on the relationships between members and trustees.
|
Members |
Trustee type |
Requirements |
|---|---|---|
|
Single member |
Corporate |
Member is the sole director, or member is one of two directors, the other being either a relative of the member or the member is not an employee of the other director |
|
Single member |
Individual |
Member is one of two trustees, the other being either a relative of the member or the member is not an employee of the other trustee |
|
Not a single |
Corporate |
Each director is a member Each member is a director No member is an employee of another member, unless those members are relatives |
|
Not a single |
Individual |
Each trustee is a member Each member is a trustee No member is an employee of another member, unless those members are relatives |
An exception to the above rules is where the legal personal representative (LPR) of a member becomes a trustee or director of the corporate trustee in place of the member. This can occur:
-
when the member has died, in which case the LPR can be a trustee until the death benefits commence to be payable
-
when the member is under a legal disability
-
when the LPR has an enduring power of attorney in respect of the member.
Where there is no LPR and the member is a minor, a parent or guardian can step in as a trustee, or as the director of a corporate trustee.
Where an SMSF ceases to satisfy the above rules and it was not caused by the admission of a new member, the fund has up to six months to correct this before the fund will cease to be an SMSF. For example, where there are two individual trustees and one passes away, the remaining member would have up to six months to either appoint a corporate trustee, or appoint a new individual trustee or wind up the fund.
As with all superannuation funds, a disqualified person can’t be a trustee or a director of a corporate trustee of the fund. Importantly, an LPR cannot act as trustee for a disqualified member, nor can a disqualified individual remain a member of an SMSF.
A disqualified person is one who:
-
has been convicted of an offence involving dishonest conduct
-
has had a civil penalty order made against them
-
is an insolvent under administration, or
-
has been disqualified by the regulator due to contraventions of the SIS Act or because the regulator believes the person is not a fit and proper person to be a trustee.
If a disqualified person becomes a trustee of an SMSF or continues to act as a trustee of an SMSF after becoming a disqualified person, they could be subject to conviction resulting in a sentence of up to two years imprisonment.
Irrespective of whether the fund has an individual or corporate trustee, consideration should be given to how the fund would continue should one of the trustees pass away. While the SIS Act makes an allowance for the LPR of the trustee to act in their place until a benefit can be paid, probate may be required before the LPR can legally act in the capacity as trustee.
Renumerations of trustees
A key principle of the SMSF system is that trustees or directors of the corporate trustee are not remunerated for their work in relation to the fund, except where:
-
a trustee provides services to the fund which they also provide to the public in the course of running a business. In this case, the trustee must be qualified and licensed to provide the services and must not be paid above market rates for the service/s.
-
a trustee incurs expenses on behalf of the fund, in which case the trustee is entitled to be compensated. If they are not compensated, it’s likely the expenses incurred will be classified as a contribution.
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This article is for Financial Advisor use only.
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