A self-managed superannuation fund (SMSF) is a small super fund run by its members and regulated by the Australian Taxation Office (ATO). It is a fantastic way of gaining a greater degree of day-to-day investment control as part of your retirement savings plan. But in order to run one successfully, you have to understand what your obligations and responsibilities are as a trustee. It's a lot more complex than simply opening up a savings account and there can be consequences if you get it wrong.
In the following, we'll attempt to answer some of the most common questions people have regarding their trustee responsibilities. In the process, you will hopefully be better set up to run a successful SMSF or you may realise that running a super fund is best left to the experts.
What are an SMSF trustee's obligations regarding their fellow members?
While it's possible to run a single-member fund, many SMSFs have multiple members. In this case, the decisions you make will affect the fortunes of others. Not only to you need to make sure that you manage the fund and all its assets separately from your own assets, there are a number of important ethical obligations you as a trustee must keep to.
As the ATO outlines, you must always act honestly and in good faith with the best interests of your fellow members in mind, and manage the fund with skill and diligence. Conversely, you cannot behave in a way that will prevent other members from performing or exercising their roles and powers. As well as this, you must not allow members to access their funds early.
What are my legal responsibilities as a trustee?
As well as these ethical obligations, one of the basic principles of SMSFs is that they must be run for the sole purpose of providing death or retirement benefits for the members or the members' dependents. There are also a number of other legal requirements that a trustee must stick to. The first is the SMSF trust deed, which is the set or rules which governs the functioning of the fund. Along with this, trustees have to comply with the superannuation laws, taxation laws and principles established under trust law. If the trust deed and the law come into conflict, the law will always take precedence.
What happens if I violate any of these obligations or legal responsibilities?
As a trustee of an SMSF you're responsible for ensuring compliance with super and tax laws and you don't have access to some of the legal protection that applies to members of other types of super funds. Perhaps the mildest form of punishment that an SMSF trustee can face for transgressing against these rules are administrative financial penalties – for which you may be personally liable. There are more serious repercussions, however. You can be suspended or even outright removed as a trustee, your SMSF can be declared non-complying and lose its tax concessions and face a hefty tax bill of up to 47% of the value of your fund, and you can even face civil or criminal prosecution.
Are there any annual obligations I have to keep in mind?
There are a number of annual obligations to do with administering an SMSF that trustees are in charge of. One of the most important of these is the yearly audit, for which the trustee must appoint an independent and approved auditor at least 45 days prior to the due date for the return. The trustee is also responsible for lodging the return by this date.
In addition, an SMSF trustee is responsible for keeping accurate tax and super records, notifying the ATO if there are any changes in the fund's details and arranging the valuation of the fund's assets.
This is just a brief overview of the various responsibilities and obligations an SMSF trustee is charged with. In order to run a successful SMSF, you'll want to get a firm and detailed understanding of the role and make sure you have the time and skills to manage the fund. Talking to an expert or doing independent research will definitely help.
Advice contained in this article is general in nature and not specific to your particular circumstances. Before making an investment decision you should consider your own financial situation and the relevant Product Disclosure Statement/s. We also recommend you seek advice about your own particular circumstances from a licensed financial adviser.