Structuring your fund
For your fund to be an SMSF it must meet several requirements under the super laws.
The requirements can vary depending on whether your fund has individual trustees or a corporate trustee. Some additional rules apply to funds with only one member (see below).
- If your fund has individual trustees, it is an SMSF if all of the following apply:
- it has four or fewer members
- each member is a trustee
- each trustee is a member
- no member is an employee of another member, unless the members are related
- no trustee is paid for their duties or services as a trustee.
- If your fund has a corporate trustee, it is an SMSF if all of the following apply:
- it has four or fewer members
- each member of the fund is a director of the trustee company
- each director of the corporate trustee is a member of the fund
- no member is an employee of another member, unless the members are related
- the corporate trustee is not paid for its services as the trustee
- no director of the corporate trustee is paid for their duties or services as director of the corporate trustee.
- Single member funds It is possible to set up your super fund with only one member. If your single member fund has a corporate trustee, the member must be one of the following:
- the sole director of the corporate trustee
- one of only two directors, that is either
- related to the other director
- any other person but not an employer of the member.
If you choose not to have a corporate trustee, you must have two individual trustees. One trustee must be the member and the other must be a trustee that is either:
- a person related to the member
- any other person but not an employer of the member.
A corporate trustee is a company incorporated under the law that acts as a trustee for the fund. If you already have a company, you may choose to use it as trustee, as long as it meets the same requirements for members and trustees.
Your choice of trustee will make a difference to the way you administer your fund and the types of benefits it can pay, so make sure it suits your circumstances.
Trustee eligibility
In most cases, all members of the fund must be trustees, so it is important to make sure all members are eligible to be a trustee.
Generally, anyone 18 years old or over and not under a legal disability (such as bankruptcy or mental incapacity) can be a trustee of an SMSF unless they are a disqualified person.
A person is disqualified if any of the following apply. They:
- have been convicted of an offence involving dishonesty
- have been subject to a civil penalty order under the super laws
- are considered insolvent under administration
- are an undischarged bankrupt
- have been disqualified by a regulator – for example, by us or APRA.
- A company cannot be a corporate trustee if any of the following apply:
- the responsible officer of the company (such as a director, secretary or executive officer) is a disqualified person
- a receiver, official manager or provisional liquidator has been appointed to the company
- action has started to wind up the company.
You must declare that you and the other trustees or directors of the corporate trustee, are not disqualified when you register your fund with us. In certain circumstances (such as minor dishonesty offences) a disqualified person can apply to us in writing for a waiver of their disqualification status.
Minors
Members under 18 years old are under a legal disability and cannot be trustees of an SMSF. A parent or guardian of a minor who does not have a legal personal representative can act as a trustee on the minor’s behalf.
Legal personal representatives
A legal representative can be:
- the executor of the will or the administrator of the estate of a deceased person
- the trustee of the estate of a person under a legal disability
- a person who holds enduring power of attorney to act on behalf of another person.
A legal personal representative can act as a trustee or director of a corporate trustee, on behalf of:
- a deceased member, until the death benefit becomes payable
- a member under a legal disability (mental incapacity)
- a minor – a parent or guardian can also act as a trustee on behalf of a minor.
A legal personal representative cannot act as trustee on behalf of a disqualified person, such as an undischarged bankrupt. A legal personal representative who holds an enduring power of attorney granted by a member may be a trustee of the SMSF or a director of a corporate trustee in place of the member.
Having a resident fund
To be a complying super fund and receive tax concessions, your fund must be a resident-regulated super fund at all times during the income year. This means your fund must meet the definition of an ‘Australian superannuation fund’ for tax purposes.
If your fund is a non-complying fund, its assets (less certain contributions) and its income are taxed at the highest marginal tax rate.
Preparing an investment strategy
Before you start making investments, you must prepare an investment strategy. An investment strategy sets out how you plan to achieve the fund’s investment objectives. It provides you and the other trustees with a framework for making investment decisions to increase member benefits for their retirement.
A licensed financial adviser can help you prepare an investment strategy, but you and the other trustees are responsible for managing the fund’s investments.
There is no prescribed format for the investment strategy, but it must reflect the purpose and circumstances of the fund and its members and must be reviewed regularly to make sure it is still appropriate.
When preparing your investment strategy, consider the following:
- diversification (investing in a range of assets and asset classes)
- the risk and likely return from investments to maximise member returns, including insurance requirements
- the liquidity of fund’s assets (how easily they can be converted to cash to meet fund expenses)
- the fund’s ability to pay benefits when members retire and other costs the fund incurs
- whether the fund should hold insurance cover for members
- your members’ needs and circumstances.
Your investment strategy should be in writing so you can show your investment decisions comply with the strategy and the super laws.
- Being a trustee of an SMSF gives you more ?exibility in investing your fund’s money. Unlike some other super funds, you can choose the investments for your fund, but you must invest according to the:
- fund’s trust deed
- investment strategy
- super laws.
While the super laws do not tell you what you can and cannot invest in, they do set out certain investment restrictions you must comply with.
For example, in most cases, trustees cannot:
- use the fund’s money to provide financial assistance to members or member’s relatives
- acquire assets (with limited exceptions) from related parties of the fund, including
- fund members and their associates
- all the fund’s standard employer-sponsors and their associates
- borrow money on the fund’s behalf (certain limited recourse borrowing arrangements are allowed)
- lend to, invest in or lease to a related party of the fund (including related trusts) more than 5% of the fund’s total assets
- enter into investments on the fund’s behalf that are not made or maintained on an arm’s length (commercial) basis.