Trustee obligations

Founder and Publisher of the Switzer Report
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As a trustee, you must comply with the minimum requirements set out in the Superannuation Industry (Supervision) Act and include these requirements in your SMSF’s trust deed. The rules require you to:

  • Act honestly in all matters concerning the fund;
  • Exercise the same degree of care, skill and diligence as an ordinary prudent person in managing the fund;
  • Act in the best interest of all fund beneficiaries;
  • Keep the money and assets of the fund separate from other assets (such as the trustees’ personal or business assets);
  • Retain control over the fund;
  • Develop and implement an investment strategy;
  • Not enter into contracts or behave in a way that hinders trustees from performing or exercising their functions or powers; and
  • Allow members access to certain information.

In addition to these general requirements, there are a number of specific requirements that we’ll now discuss in detail.

Comply with the sole purpose test

The ‘sole purpose test’ requires super funds to be maintained for the sole purpose of providing its members with retirement benefits. Read more in Key rules.

Accepting member contributions

The SIS Act requires trustees to determine whether a member has met the criteria to be able to contribute to super. The criteria for a member to contribute, or for a contribution to be made on their behalf, generally depend on the member’s age, their employment status, and the type of contribution to be made.

Further, there is a cap on the amount of contributions that a member can make in any one financial year (or that can be made on their behalf). If the cap is exceeded, the member will be liable to pay additional tax. Known as the ‘concessional cap’ and the ‘non-concessional cap’, these caps work as follows:

ConcessionalContributions where the person making the contribution has already claimed a tax deduction, and will thus be taxable in the fund.• Employer
• Salary Sacrifice
• Self-employed (where tax deduction claimed)
$30,000 if under 50; $35,000 if 50 or over
Non-ConcessionalContributions where the person making the contribution has not claimed a tax deduction, and will thus not be taxable in the fund.• Personal contributions
• Spouse

($540,000 over a rolling 3 year period if under 65)

* If the member is over 65, he/she will need to meet the employment tests.

Trustees are required to allocate super contributions to members’ accounts within 28 days after the end of the month in which they were received. For more on types of contributions and contributions caps, please read Making Contributions.

Managing your investments

Trustees must formulate an investment strategy. Although there is no regulatory requirement for the strategy to be written, a written document will make it much easier to demonstrate to both the fund’s auditor and the ATO that you have considered all the relevant issues.

The issues that the strategy needs to address include:

  • Investment objectives – what is the investment objective which is going to meet members’ retirement needs? Is it, for example, to exceed inflation by a certain amount, or to accumulate a certain level of assets? It is important to set the investment objective of the fund as it will provide guidance and direction for the investment strategy.
  • Risk and return – what level of risk is each member comfortable with having their benefits exposed to? Is the fund targeting a ‘high growth’ strategy? Or does it want a more ‘balanced’ portfolio?
  • Investment time frame – investment time frames will differ for each member and will affect the types of investments that are appropriate. Factors such as the member’s age, years to retirement, and the type of benefit to be paid will all have an impact on the investment time frame.
  • Diversification – how should investments be spread across the various asset classes? Is there a limit on the size of any one investment to no more than a certain proportion of the fund’s overall assets?
  • Liquidity – how quickly can the fund access cash to, for example, pay a pension? What other liabilities or expenses may fall due? What is the appropriate level of cash to have on hand? And how long would it take to sell the fund’s assets?

It should be noted that consideration of the issues above may lead the trustees to decide that they need to formulate separate investment strategies for different members of the fund, and then hold the assets in different pools for the different members. For example, if one member is in the accumulation phase with some years to go before reaching retirement age, and another member is in the pension phase and requires more income oriented investments, it is quite normal to have different investment strategies and run individual pools of assets.

When an investment strategy has been established, the trustees need to ensure that they review the investment strategy on a regular basis. Triggers for a review would include the departure or death of a member, the addition of a new member, or the retirement of a member. In any event, the strategy should be reviewed at least once a year.

You need to stick to your investment strategy. Asset performance should be monitored and measured and a formal investment review should be conducted at least every six months. If the circumstances of the members change, or the investment objectives change, the investment strategy can be easily changed at any time. The only requirement is that the new strategy reflects the changed investments of the fund, and that the changes are recorded (preferably in a trustee minute).

You are now also required to consider whether the fund should arrange insurance for one or more members. For more about investment strategies, please read Creating an investment strategy.

Paying Benefits

Paying benefits is an important part of your duties as a trustee. Benefits can generally be paid in two ways: as a lump sum or as an income stream.

The only compulsory cashing out of benefits is the requirement to pay a member’s death benefit as soon as practicable after the member’s death. The payment of all other benefits is voluntary – that is, at the member’s discretion, subject to the member meeting a ‘condition of release’.

There are a range of rules relating to when a member can and can’t access their super. For more on this, read Paying benefits.

Administering your fund

Trustees have several administrative responsibilities, which include:

Arranging a combined annual return for the SMSF – this includes the annual tax return, the annual financial and compliance audit by an approved external auditor, and annual member contribution statements. For SMSFs that are not new entrants and prepare their own return, this is due to the ATO by October 31. If you use a tax agent, they generally work to a later lodgement date.

Valuing the fund’s assets – in order to prepare the fund’s accounts and to accurately report member benefits, the trustees are required to value the fund’s assets on an annual basis at the current market value. This is straightforward if the assets are listed securities, such as shares. However, when the asset is difficult to value, such as a commercial property or piece of artwork, the trustees may need to engage a qualified external valuer. The ATO has published ‘Valuation Guidelines for Self Managed Superannuation Funds’, which provides further information.

Record keeping – trustees are required to keep accurate and accessible documents that detail what the fund has done and the reasons and decisions made by the trustees. Accounting records, income tax returns and regulatory returns must be kept for five years. Certain records must be kept for 10 years, including:

  • Trustee declarations
  • Minutes of trustee meetings
  • Member’s consents to act as a trustee
  • Records of all changes of trustees
  • Copies of all reports given to members

Change in fund details – trustees must notify the ATO within 28 days of a change in the fund’s details, including:

  • Change in the trustees (including directors of a corporate trustee)
  • Change in members
  • Change of address, or contact details, or contact person
  • Change in the fund structure or status

You can notify the ATO about these changes online, or download the form NAT 3036 Change of details for superannuation entities by clicking here.

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