There is a lot to talk about when it comes to SMSF”s, so let’s start from the beginning.
A SMSF is a superannuation fund with less than five members that is managed by its members. The members, or a company owned and controlled by the members, act as the trustees. The trustees control the investments and are generally responsible for the SMSF’s administration and its compliance with the law. A SMSF is controlled by a deed. The deed sets out the rules the SMSF has to follow. It also sets out the obligations and responsibilities of the people connected to the SMSF, ie the members and the trustees. The rules for paying contributions on retirement or death, investing assets, holding meetings, appointing trustees, paying benefits to members and the other matters affecting the SMSF are also found in the deed.
A SMSF is a special type of trust. It is special because the trust assets are held and managed by a trustee for the purpose of providing retirement income and other benefits to members. This means it qualifies for special income tax concessions under the tax law.
The three essential parts of a trust are present in a SMSF. These are;
The trust deed must have special rules if the SMSF is to be a complying superannuation fund and be eligible for tax concessions. However, it is the trustee’s year-to-year conduct that ultimately determines the SMSF’s eligibility for tax concessions.
The auditor must certify to the Regulator that the SMSF complied with the superannuation law in the relevant year. The Regulator then accepts the SMSF is a complying fund and it is taxed on the concessional basis set out in the Income Tax Assessment Act 1936 (“the Tax Act”). If the auditor does not certify that the SMSF complied with the superannuation law, the tax concessions can be withdrawn by the Regulator and the value of the SMSF’s assets, less any undeducted contributions, are taxed at 47%.
What Other Laws are Relevant?
Trustees are subject to a wide range of laws. These include the general law, the special body of law developed over centuries that applies to trustees, the Superannuation Industry (Supervision) Act and six related pieces of legislation (“the SISA”) and the Tax Act. These laws must be complied with if the SMSF is to be eligible for tax concessions and the trustees are to avoid penalties under the SISA. The SISA is enforced by the Australian Tax Office.
Advantages of SMSF's
Disadvantages of SMSF's
Compliance with the Superannuation Industry (Supervision) Act requires the following administration duties that can result in unexpected costs to the SMSF: