SMSF basic conditions

Technical resource

Regulated by the Australian Taxation Office (ATO), SMSFs are treated differently from other superannuation funds and must meet additional conditions.

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
fund

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
fund

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 director

Not a single
member fund

Corporate

Each director is a member Each member is a director No member is an employee of another unless those members are relatives

Not a single
member fund

Individual

Each trustee is a member Each member is a trustee No member is an employee of another 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 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 fix the fund before it will cease to be an SMSF. For example, where there were two individual trustees and one passed 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 can’t 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 a 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 aren’t 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 rate 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’re not compensated, it’s likely the expenses incurred will be assessed as a contribution.

Next: Establishing an SMSF

This guide outlines some of the ways you might benefit from an SMSF but also some of the key things you need to consider before establishing one and moving your benefits over to it.
Article

Contact BT Technical Services for more information

An overview of the types of income streams which can be paid from superannuation funds or with superannuation benefits.
Technical resource
One of the main reasons an individual would use an SMSF is for estate planning which can offer greater flexibility to beneficiaries than is available in a public offer fund.
Technical resource

FOR ADVISER USE ONLY

This information has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac), for financial advisers only and must not be made available to any client or any other person, or attributed to Westpac or any other company in the Westpac group.

The information is an overview only and it should not be considered a comprehensive statement on any matter nor relied upon as such. Any graph, case study or example is for illustrative purposes only and is not an indication of future performance or result. Where past performance is used, please note that past performance is not a reliable indicator of future performance. Any taxation information is a general statement based on current laws and their interpretation. The article is current as of the date of the article unless stated otherwise. The article does not contain, and should not to be taken to contain, any financial product advice and it does not take into account any person’s financial situation, needs, objectives or taxation situation. Because of this, you should, before acting on the information, consider its appropriateness to your clients, having regard to their financial situation, needs and objectives, and your clients should seek independent professional taxation advice on any taxation matters. It is not the intention of Westpac or any member of the Westpac group that the information be used as the primary source of readers’ information but as an adjunct to their own resources and training and should therefore not be relied on for the purposes of making any financial recommendations or an investment decision. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this website is complete, accurate or up to date or fit for any purpose; and (b) no member of the Westpac group is in any way liable to you (including for negligence) in respect of any reliance upon such information.

This page may also contain links to websites operated by third parties (‘Third Parties’) who are not related to the Westpac Group (‘Third Party Web Sites’). These links are provided for convenience only and do not represent any endorsement or approval by the Westpac Group of those Third Parties or the information, products or services displayed or offered on the Third Party Web Sites.