Superannuation & SMSF
FC News Blog
- Protecting your Superannuation upon Death
Trustees Obligations
Who can be a Trustee of a SMSF
- Every member of a SMSF must be a trustee of the fund and is responsible for ensuring that the fund is properly managed and complies with all governing rules.
- Each member of a fund will need to make important decisions that will affect the retirement savings of the fund’s members. Firstly for a person to be eligible to be a trustee, they must be over eighteen years of age, an Australia resident, and cannot be an employee or employer of another member.
What are the obligations and duties of SMSF Trustees?
The duties and responsibilities of a trustee include:
- Ensuring that the sole purpose of the fund is to pay retirement benefits to members.
- Developing and implementing an investment strategy.
- Managing the cash flow of the fund, including accepting contributions and paying out benefits such as pensions and lump sums.
- Seeing that the fund is audited for each income year by an approved auditor.
- Undertaking administrative tasks such as record keeping and lodging annual returns.
On top of these duties the rules under the Superannuation Industry (Supervision) Act 1993 require you to:
- Act honestly in all matters concerning the fund
- Act in the best interest of all fund beneficiaries
- Allow members access to certain information
- Ensure the money and the assets of the fund are kept separate from your personal assets.
SMSF Trustee Obligations and the “Sole Purpose Test”
- Under the Superannuation Industry (Supervision) Act 1993 there exists the sole purpose test which sets the primary and ancillary purposes for which a SMSF is to be operated, i.e. to provide benefits to members upon their retirement, reaching of retirement age or death. This governs the obligations of the Trustees of SMSFs.
- A breach of the test may cause the SMSF to lose its status as a complying fund and can incur fines of up to $220,000 or 5 years imprisonment for the trustees.
- Consequently, all investment decisions should be made in accordance with the fund’s investment strategy and should be based solely on providing retirement savings for the funds members.
- Common breaches of the sole purpose test include:
- seeking out an investment that offers a pre-retirement benefit to a member or associate; or
- entering into an arrangement to provide financial assistance or a pre-retirement benefit to a person or entity at a financial detriment to the fund.
Arm’s Length Transactions & Providing Financial Assistance
- If an SMSF has any dealings with a related trust or any party who is not at arm’s length, all dealings must be undertaken as if that party was at arm’s length.
- This is particularly relevant in avoiding contravention of s 65 of the SIS Act, lending money to a related party of a fund.
- A related party of the fund is either a member of the fund or a relative of a member of the fund. A ‘relative’ is construed broadly to mean a parent, grandparent aunt, uncle, brother, sister, nephew, niece, lineal descendant or adopted child of that individual or his or her spouse, or a spouse of any such person.
- The following dealings with a related party can be considered as providing financial assistance:
- Selling an SMSF asset for less than its market value;
- Purchasing an asset for greater than its market value;
- Acquiring extraneous services from a member or relative;
- Delaying debt recovery action, or forgiving a debt owed to the SMSF;
- Giving a guarantee, indemnity, security or charge over SMSF assets for the benefit of a member of relative.
Recent Cases Involving SMSF Trustee Obligations
- August 2008 saw the first criminal charges brought against Self Managed Superannuation Fund trustees.
- The charges were brought against Mr Atan Ona Kassongo following allegations that he was offering people early access to their superannuation funds.
- Mr Kassongo had 192 superannuates rollover their persevered superannuation benefits from complying super funds into the Kassongo Super Fund. He then disseminated the funds to the superannuates before they had reached retirement age.
- Mr Kassongo charged a considerable commission for the service.
- He pleaded guilty to the charges laid against him and was sentenced in July 2009.
Ferguson Cannon Lawyers have an experienced team of lawyers that will be able to assist you with all of your requirements relating to SMSFs. For any further queries please do not hesitate to contact Byron Cannon, Director, or Samuel Barber, Lawyer on 07 5443 6600, or email byron@fclawyers.com.au or sam@fclawyers.com.au.
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