Guide to self-managed superannuation funds
Guide to self-managed superannuation funds
Overview
Like other superannuation (super) funds, self-managed super funds (SMSFs) are a way of saving for your retirement. The difference between an SMSF and other types of funds is, generally, that members of an SMSF are the trustees. This means the members of the SMSF run it for their own benefit.
Thinking about self-managed super
SMSFs aren't for everyone and you should think carefully before deciding to set one up. It's a major financial decision and you need to have the time and skills to do it. There may be other, better options for your super savings. Either way, you should certainly get professional advice.
Setting up an SMSF
If you set up an SMSF, you become a trustee of the fund. This means you'll be responsible for managing your SMSF according to its trust deed and the laws and rules that apply to SMSFs. The key principle is that you run your SMSF for the sole purpose of providing retirement benefits to fund members.
Managing your fund's investments
You need to manage your fund's investments in the best interests of fund members and in accordance with the law. Your investments must be separate from the personal and business affairs of fund members, including yourself.
Accepting contributions
You can accept money contributions for your members from various sources, but there are some restrictions, mostly depending on the member's age and whether they've exceeded the contribution caps. Generally, you can't accept an asset as a contribution from a member, although there are some exceptions.
Reporting, record keeping and administration
As a trustee you'll have a number of administrative obligations - for example, you'll need to arrange an annual audit of your fund, keep appropriate records and report to us on the fund's operation.
Accessing your super
Accessing the super in your SMSF to pay benefits is generally only allowed when a member reaches what's called their 'preservation age' and meets one of the specified conditions of release - for example, they retire. There are very limited circumstances, such as death or terminal illness, where a member's super can be accessed before this. There are significant penalties for unlawfully releasing super benefits.
Understanding tax and SMSFs
The income of your SMSF is generally taxed at a concessional rate of 15%. To be entitled to this rate, your fund has to be a 'complying fund' that follows the laws and rules for SMSFs.
Winding up an SMSF
At some point, you may need to wind up your SMSF. This could happen if all the members and trustees have left the SMSF or all the benefits have been paid out of the fund.
Contents: Guide to self-managed super funds
Overview
Thinking about self-managed super
Setting up an SMSF
Managing your fund's investments
Accepting contributions and rollovers
Reporting, record keeping and administration
Accessing your super
Understanding tax and SMSFs
Winding up an SMSF
Thinking about self-managed super
Managing your own super is a big responsibility. There are strict rules that govern how you can use a self-managed super fund (SMSF), how you can invest your money and when you can get at it.
Before deciding whether to manage your own super, think about the following:
Consider your options and seek professional advice
If you're not confident you can get a better result from an SMSF, you may be better off with a different type of fund.
Make sure you have enough assets, time and skills
To establish a competitive fund, you need considerable super savings available to invest and be willing to put your own effort into managing the fund. At times, you might need to consult with professionals and advisers, which adds to the cost of managing your fund.
Understand the risks and laws
All financial decisions carry risk, so it's important to think carefully about your investment options to balance the level of risk against the level of financial return. You also need to be sure your super investments are legal.
Consider your options and seek professional advice
If you set up an SMSF, you're in charge - you make your own investment decisions and you're responsible for complying with the law.
Or you can put your super in a large super fund where it's pooled with the super of other members and professionally managed by the trustees of the fund. Most people invest their super this way.
It's an important decision, and the best approach for you depends on your personal situation, so we recommend you see a qualified and licensed professional to help you decide. Financial advisers, tax agents and accountants can help you understand what's involved and advise on the best option.
If you decide to set up an SMSF, make sure it's for the right reason: saving for your retirement. Don't set up an SMSF to try to get early access to your super, or to buy a holiday home or artworks to decorate your house. These things generally don't comply with super law, and schemes to get early access to super are usually illegal and fraudulent.
Make sure you have enough assets, time and skills
You'll need the money, time and skills to:
- make the best investment decisions
- meet all your obligations as a trustee of your fund.
As a trustee of an SMSF, your main responsibility is to ensure you've invested your fund's money appropriately, so ask yourself:
- Am I a confident and knowledgeable investor?
- Will an SMSF do as well as or better than other super funds after I pay all the costs?
If you're not confident you can get a better result, you may be better off leaving it to super professionals.
Costs of setting up and running an SMSF
To establish a viable SMSF that's competitive with large funds, you'll need around $200,000 in super savings. Your ongoing costs will be around $2,000 to run a median-sized fund each year, including $180 each year for an annual supervisory levy.
If you set or join an SMSF, you'll also need to have adequate life insurance in case you die or you're unable to work because of an illness or accident.
There can be a big variation in the cost of setting up and running a fund - it depends on the cost of the professional accounting services you use and the cost of tax, audit and legal advice you obtain to run the fund. Life insurance can also be expensive compared to the large funds: they buy group policies that enable them to offer life insurance benefits (for illness or accident) at relatively low cost.
Understand the risks and laws
Think carefully about your investment options and how to manage the associated risks. You need to consider:
- your age
- what level of risk you're comfortable with
- the objectives you have for your fund.
Avoid risking all your retirement savings in one or a few investments. By spreading your investments (diversifying), you can help control the total risk of your investment portfolio.
Super funds, including SMSFs, receive significant tax concessions as an incentive for members to save for their retirement. However, you need to follow the tax and super laws to receive these concessions.
If you decide to set up an SMSF, you're legally responsible for all the decisions made, even if you get professional advice.
Setting up an SMSF
When you set up an SMSF, you become a trustee (or the director of a company that is a trustee).
What it means to be a trustee
A trustee is responsible for running the fund and acting in the best interests of the members. As a trustee, you need to manage the fund and its investments separately from your own affairs.
How your SMSF is regulated
We administer the relevant super laws for SMSFs, work with you to help you meet your obligations and verify compliance, but we don't provide financial or investment advice.
Laws, rules and consequences
You're also responsible for running the fund according to its trust deed and the super laws. If you don't, the tax concessions that normally apply to your super may be affected and you may face penalties. Your fund must be run for the sole purpose of providing retirement benefits for the members.
Steps to setting up an SMSF
Your SMSF needs to be set up correctly so that it's eligible for tax concessions, can pay benefits and is as easy as possible to administer. Here are the steps to setting up your fund:
- Appoint an SMSF professional to help you set up and run your fund
- Work out the structure of your fund
- Make sure you (and the other members) are eligible to be a trustee
- Check the residency of your fund
- Create your trust and trust deed
- Appoint your trustees
- Record each member's tax file number
- Open a bank account for your fund
- Register with the ATO
- Prepare an investment strategy.
What it means to be a trustee
When you set up an SMSF, you take on the role of either a:
- trustee, or
- director of a company that is a trustee (called a corporate trustee).
A trustee is a person or company that holds and invests a fund's assets for the benefit of the members' retirement.
A corporate trustee is a company incorporated under the law that acts as a trustee for the fund. Generally, to be an SMSF, all directors of the company need to be members, and all members need to be directors of the company. If you already have a company, you can use it as trustee.
As a trustee or director, you're responsible for running the fund and making decisions that affect the retirement interests of each fund member, including yourself. You need to comply with the super and tax laws so your fund is entitled to tax concessions and members' interests are protected. We expect you to:
- act in the best interests of all fund members when you make decisions
- manage the fund separately from your own affairs
- ensure the money in the fund is only accessed where the law allows it
- know, understand and complete your responsibilities and obligations
- ensure your SMSF is independently audited every year
- lodge your SMSF annual return every financial year
- pay the supervisory levy.
All trustees and directors are equally responsible for managing the fund and making decisions - even if one takes a more active role in its day-to-day running.
How your SMSF is regulated
The super system is regulated by three key government agencies:
- the Australian Taxation Office (ATO) - we administer the relevant super laws for SMSFs and work with you to help you meet your obligations
- the Australian Securities & Investments Commission (ASIC) - regulates financial services to protect consumers
- the Australian Prudential Regulation Authority (APRA) - regulates large super funds other than SMSFs.
The ATO will help you understand your duties and responsibilities as a trustee under the law and make it as easy as possible for you to comply, for the future benefit of the members of your fund. We check compliance to safeguard retirement income, but we don't evaluate your investment choices. We're responsible for administering the super and income tax laws, but not for developing the law or related policy.
Our activities include:
- verifying that a fund's primary purpose is to pay retirement benefits to its members
- providing information and forms to help you set up and manage your fund
- checking that you manage your fund in accordance with the super laws
- implementing and maintaining systems to check the laws are complied with
- taking enforcement action to correct matters when there's a breach of the law
- checking that approved auditors perform their duties to the required standard.
We don't:
- provide financial or investment advice
- advise on the structure of your fund or whether an SMSF is a sensible choice for you
- advise on resolving disputes between trustees
- recommend specific professionals or intervene if you have a dispute with a professional.
Laws, rules and consequences
As an SMSF trustee, you must act according to your fund's trust deed and the super and tax laws. If there's a conflict between the super laws and the trust deed, the law overrides the trust deed.
At the heart of the super laws is a principle called the 'sole purpose test' - this means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members (or to their dependants, if a member dies before retirement). As a trustee, you need to maintain your SMSF so that it complies with the sole purpose test at all times while your SMSF exists, including when investing fund assets and paying benefits upon retirement of members.
To protect members' retirement incomes, we regulate SMSFs to ensure they comply with the super law. Failing to comply is known as a contravention of the Superannuation Industry (Supervision) Act 1993 (SISA) or Superannuation Industry (Supervision) Regulations 1994 (SISR).
Our aim is to improve compliance and help you manage your SMSF. We do this through education, fund reviews and client services.
Where we find that you're genuinely making an effort to meet your obligations, we'll work with you to rectify any breaches.
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Early access to super is illegal
Schemes that try to get your super money out of existing funds early are illegal and fraudulent. If you participate in one of these schemes, you risk having to pay heavy tax and legal penalties. You also won't be eligible for any compensation under super law if your super fund suffers from fraudulent conduct or theft.
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Consequences of failing to comply
If you fail to perform your duties according to the laws, the tax concessions that normally apply to your super may be affected and you may face penalties.
We will take a firm approach with you if you fail to make a genuine effort to comply, or if you set out to deliberately avoid meeting your legal obligations. Depending on the severity of the breach, we may:
- declare your fund to be non-complying - it will then be taxed at the top marginal rate
- prosecute you for failing to obey the law.
If we consider that the assets of your fund are at risk, we can take action to protect them. This may include:
- disqualifying you as trustee
- removing you as trustee
- freezing your fund's assets.
Step 1: Appoint an SMSF professional to help you set up and run your fund
It's a good idea to use SMSF professionals to help you. For example:
- a tax agent can help prepare your fund's accounts and its annual financial position and operating statements, complete and lodge your self-managed super fund annual return, provide tax advice and represent you in your dealings with us
- a fund administrator can help you manage the day-to-day running of your fund and meet your annual reporting and administrative obligations
- a legal practitioner can review and update your fund's trust deed
- a financial adviser can help you prepare an investment strategy.
Many SMSF professionals also offer packages or kits to make the process easier. If you buy a package or kit, make sure the trust deed complies with the latest changes to the law and is specific to your fund, its objectives and the members' circumstances.
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If you use an SMSF professional to help you set up your fund, you're still responsible for making sure it's done correctly.
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Step 2: Work out the structure of your fund
You can choose one of the following structures for your fund:
- up to four individual trustees
- a corporate trustee (essentially, a company acts as trustee for the fund).
Your choice of trustee will make a difference to the way you administer your fund and the types of benefits it can pay, so you need to make sure it suits your circumstances. We recommend you discuss your trustee options with an SMSF professional.
If your fund has individual trustees, it's an SMSF if all of the following apply:
- it has four or less members
- each member is a trustee
- no member is an employee of another member, unless they're related
- no trustee is paid for their duties or services as a trustee.
If your fund has a corporate trustee, it's an SMSF if all of the following apply:
- it has four or less members
- each member of the fund is a director of the company
- each director of the corporate trustee is a member of the fund
- no member is an employee of another member, unless they're related
- the corporate trustee is not paid for its services as a trustee
- no director of the corporate trustee is paid for their duties or services as director in relation to the fund.
Single member funds
It's possible for you to set up your fund with only one member.
If you have a corporate trustee for a single member fund:
- the member needs to be either:
- the sole director of the trustee company, or
- one of only two directors, who is either related to the other director or not an employee of the other director
- no director of the corporate trustee is paid for their duties or services as director in relation to the fund.
You can also have two individuals as trustees. One trustee needs to be the member and the other needs to be either:
- a person related to the member, or
- any other person who does not employ them.
No trustee is paid for their duties or services as a trustee.
Step 3: Make sure you (and the other members) are eligible to be a trustee
In most cases, all members of the fund need to be trustees, so it's important to make sure all members are eligible to be a trustee.
Generally, anyone 18 years or over can be a trustee of a super fund, as long as they're not under a legal disability (such as someone who is bankrupt or mentally impaired) or are a disqualified person.
A person is disqualified if any of the following apply:
- have ever been convicted of an offence involving dishonesty
- have ever 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.
Generally, members under 18 years of age can't be trustees of a super fund. A parent or guardian can be a trustee for a member who's under 18 years of age and does not have a legal personal representative.
A company can't be a trustee if:
- a 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.
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Penalties can apply if you act as a trustee while disqualified.
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Step 4: Check the residency of your fund
To be a complying super fund and receive tax concessions, your fund needs to be a resident regulated super fund at all times during the income year. This means your fund needs to 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.
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If a member moves or travels overseas for an extended period, this may affect the residency status of the fund.
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Step 5: Create your trust and trust deed
A trust is an arrangement where a person or company (the trustee) holds assets (trust property) in trust for the benefit of others (the beneficiaries). A super fund is a special type of trust, set up and maintained for the sole purpose of providing retirement benefits to its members (the beneficiaries).
To create a trust, you need to have the following:
- trustees
- property (assets) (commonly an initial nominal consideration takes place to give legal effect to the trust - for example, $10 held in trust)
- identifiable beneficiaries
- the intention to create a trust.
A trust deed is a legal document that sets out the rules for establishing and operating your fund - things like the fund's objectives, who can be a member, and how benefits are paid. The trust deed and super laws together form the fund's 'governing rules'.
A trust deed is a legal document, so you need to have it prepared by someone qualified to do so.
If your fund has individual trustees, the trust deed needs to state that the fund's sole purpose is to pay retirement benefits.
All trustees need to understand, sign and date the trust deed and ensure it is properly executed according to state or territory laws.
Step 6: Appoint your trustees
New funds usually appoint trustees under the fund's trust deed.
All trustees and directors need to sign a declaration stating that they understand their duties and responsibilities. They need to do this within 21 days of becoming a trustee or director, and you need to keep the declaration for as long as it is relevant, or otherwise for at least 10 years.
The declaration needs to be available for us to see if we request it as part of an audit or review.
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If you don't sign and retain the declaration, or make it available to the ATO when we request it, penalties may be imposed. All trustees are bound by the trust deed and are equally responsible if its rules aren't followed.
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For more information about trustee declarations or to obtain one, refer to Trustee declaration (NAT 71089).
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Self-managed super funds - home
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Step 7: Record each member's tax file number
When a member joins your fund, record their tax file number (TFN). You'll need to provide each trustee's or director's TFN when you register the fund with us.
If a member hasn't quoted their TFN:
- your fund can't accept certain contributions made on their behalf, including personal and eligible spouse contributions
- your fund needs to pay extra tax on some contributions made to that member's account
- the member may not be able to receive super co-contributions.
Step 8: Open a bank account for your fund
To be legally established, your fund needs to hold assets. The trustees hold the fund's assets in trust for the benefit of the member.
An SMSF is usually established by making a contribution to the fund at the same time as the trust deed is executed. A contribution can be money or a transfer of certain assets, such as listed shares and securities.
You need to open a bank account in your fund's name to manage the fund's operations and accept cash contributions and rollovers of super benefits. The money is then invested according to the fund's investment strategy, and used to pay the fund's expenses and liabilities.
- You don't have to open a separate bank account for each member, but you do need to keep a separate record of their entitlement (called a 'member account').
The fund's bank account needs to be kept separate from each of the trustees' individual bank accounts and any related employers' bank accounts.
Step 9: Register with the ATO
Once your fund is legally established and all trustees have signed a trustee declaration, you need to register your fund with us. When registering your fund, you can:
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You can register:
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Electing for your fund to be regulated
For your fund to be a complying fund and receive tax concessions, you need to elect for it to be regulated and comply with the super laws.
Non-regulated funds aren't entitled to tax concessions, and the members' employers (and the members who are self-employed) can't claim deductions for contributions they make to the fund.
You need to make the election within 60 days of establishing your SMSF - generally, your fund is established once the trust deed has been signed and the first contribution is made.
Getting a TFN and ABN
We allocate a TFN and ABN to all funds that register with us.
Once we've given you an ABN, we place some of your fund's details on the ABR. Funds with an ABN are also included on Super Fund Lookup. Other super funds can use Super Fund Lookup to check whether your fund is a complying fund for transferring super benefits.
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Your details may not appear on Super Fund Lookup for up to seven days while we undertake registration checks - other super funds will not transfer super benefits while your fund's details are not on Super Fund Lookup.
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Illegal early release
Early access to super is illegal. A newly registered SMSF will not automatically show as a complying fund in Super Fund Lookup. Instead, it will show a status of 'Registered - status not determined'.
This status indicates that the fund has not been operational for long and has not provided enough information for the ATO to determine its compliance status. Such a fund has not been issued with a notice of compliance (NOC) because it has not yet lodged its first SMSF annual tax return.
This means additional checks will need to occur before any APRA-regulated fund will process a rollover benefit payment to an SMSF with this status.
Registering for GST
You need to register the fund for goods and services tax (GST) if its annual GST turnover is more than $75,000. Your fund needs to have an ABN to register for GST.
Most SMSFs don't have to register for GST because SMSFs mainly make
input-taxed sales, and these don't count towards your GST turnover. See Goods and services tax for more information.
Step 10: Prepare an investment strategy
Before you start making investments, you need to have a written investment strategy.
Your investment strategy provides you and the other trustees with a framework for making investment decisions to increase members' benefits for their retirement. It should be in writing so you can show your investment decisions comply with it and the super laws.
A financial adviser can help you prepare an investment strategy, but you and the other trustees are responsible for managing the fund's investments.
Managing your fund's investments
One of your key responsibilities as a trustee is managing your fund's investments. Your investment decisions should be designed to protect and increase your members' benefits for retirement.
Your investment strategy
You invest according to your written investment strategy - this sets out your fund's investment objectives and how you plan to achieve them. It takes into account the personal circumstances of all the fund members, including their age and risk tolerance. Your investment strategy will help you maintain the right mix of investments for your fund and its members.
Restrictions on investments
Being a trustee of an SMSF gives you the flexibility to choose the investments for your fund, but there are some restrictions on how you invest and what you can invest in. Make your investments on a commercial, 'arm's length' basis and don't buy assets from, or lend money to, fund members (or other related parties). Generally, your fund can't borrow money.
Ownership and protection of assets
You need to manage your fund's investments separately from the personal or business investments of members, including yourself. This includes ensuring that the fund has clear ownership of its investment assets.
The sole purpose test
The fund's investments are for the sole purpose of providing retirement benefits to members - there can't be any pre-retirement benefits to members or related parties (such as letting members use an investment asset).
Investing in collectables and personal use assets
From 1 July 2011, all collectables and personal use assets purchased by SMSFs will have to comply with tightened legislative standards.
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The ATO checks that you manage your investments in accordance with the super laws and will help you understand your responsibilities, but we don't provide financial or investment advice.
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For more information:
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Self-managed super funds - home
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Your investment strategy
Your investment strategy provides you and the other trustees with a framework for making investment decisions to increase members' benefits for their retirement. It should be in writing so you can show your investment decisions comply with it and the super laws.
When preparing your investment strategy, you need to consider:
- diversification (investing in a range of assets and asset classes)
- the risk and likely return from investments, to maximise member returns
- 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
- the members' needs and circumstances (for example, their age and retirement needs).
Restrictions on investments
While the super laws don't tell you what you can and can't invest in, they do set out certain investment restrictions you need to comply with.
Make your investments on a commercial, 'arm's length' basis and don't buy assets from, or lend money to, fund members (or other related parties). Any time your SMSF makes an investment, it needs to be made and maintained on a strict commercial basis - this is referred to as an 'arm's length investment'. The purchase and sale price of fund assets should always reflect a true market value for the asset, and the income from assets held by your fund should always reflect a true market rate of return.
Unless an exception applies, trustees generally can't:
- lend the fund's money or provide financial assistance to members and their relatives
- acquire assets from related parties of the fund, including:
- fund members and their associates
- the fund's standard employer-sponsors and their associates
- borrow money on the fund's behalf (certain instalment warrant 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 - these are called 'in-house assets'.
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The investment restrictions are some of the most important rules you need to comply with under the super laws - if you don't, we may impose significant penalties. We recommend you speak to an SMSF professional to make sure your investments comply with the law.
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Ownership and protection of assets
One of your trustee responsibilities is to ensure the assets of the fund are protected.
To protect fund assets in the event of a creditor dispute, and prevent costly legal action to prove who owns them, assets should be recorded in a way that:
- distinguishes them from your personal or business assets
- clearly shows legal ownership by the fund.
Fund assets (other than money) should be held in the name of either:
- the individual trustees as trustees for the fund, or
- the corporate trustee as trustee for the fund.
The assets can't be held in the name of a trustee or member as an individual.
The sole purpose test
Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.
If you or any party directly or indirectly obtain a financial benefit when making investment decisions and arrangements (other than increasing the return to your fund) it's likely your fund will not meet the sole purpose test. When investing in collectables, such as art or wine, you need to make sure that SMSF members don't have use of, or access to, the assets of the SMSF. The most common breaches of the sole purpose test are:
- investments that offer a pre-retirement benefit to a member or associate
- providing financial help or a pre-retirement benefit to someone, to the financial detriment of your fund.
Investing in collectables and personal use assets
Tightened legislative standards apply to SMSFs investing in collectables and personal-use assets. This is to ensure SMSF investments do not give rise to a current-day benefit and that such investments are made for genuine retirement purposes.
These standards apply to all new investments from 1 July 2011, with all existing holdings of collectables and personal-use assets to comply with these standards or be disposed of by 1 July 2016.
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Contravening the sole purpose test is very serious and may lead to trustees facing civil and criminal penalties (in addition to the fund losing its concessional tax treatment).
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For more information on the new legislative standards, refer to New regulations for
self-managed super fund investments.
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For more information about the investment rules, including the limited exceptions under the super laws, refer to Running a self-managed super fund (NAT 11032).
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Accepting contributions and rollovers
A contribution is a payment made to your fund in the form of money or an asset other than money (called an 'in specie' contribution). Provided the governing rules of your fund allow it, your SMSF can generally accept:
- employer contributions
- personal contributions
- salary sacrifice contributions
- super co-contributions
- eligible spouse contributions.
You need to properly document contributions and rollovers - including the amount, type and breakdown of components - and allocate them to the fund members' accounts within 28 days of the end of the month in which you received them.
Allowable contributions
There are minimum standards for accepting contributions - this is to ensure contributions are made for retirement purposes only. Whether a contribution is allowable depends on:
- the type of contributions - for example, you can accept mandated employer contributions, such as super guarantee contributions from a member's employer, at any time
- the age of the member - for example, you can't accept non-mandated contributions from members aged 75 or over
- whether the member quotes their TFN
- whether the member has exceeded the fund-capped contributions - these are indexed annually.
These are minimum standards - the trust deed of your fund may have more rules about accepting contributions.
In specie contributions
In specie contributions are contributions to your fund in the form of an asset, rather than money or cash.
Generally, you can't intentionally acquire assets (including in specie contributions) from related parties of your fund. However, there are some exceptions to this rule, such as listed securities and business real property acquired at market value.
Rollovers and transfers
A rollover is when a member transfers some or all of their existing super to your fund.
Allowable contributions
There are two broad types of contributions - mandated employer contributions and non-mandated contributions.
The amount of contributions made for a member is subject to contributions caps.
Mandated employer contributions
Mandated employer contributions are those made by an employer under a law or an industrial agreement for the benefit of a fund member. They include super guarantee contributions.
You can accept mandated employer contributions for members at any time, regardless of their age or the number of hours they're working at that time.
Non-mandated contributions
Non-mandated contributions include:
- contributions made by employers over and above their super guarantee or award obligations
- member contributions - these are contributions made by, or on behalf of, a member (excluding employer contributions).
Whether you can accept a non-mandated contribution depends on the member's age and circumstances - for example, for members under 65 years of age, you can generally accept all types of contributions (subject to the relevant contribution caps); but for members 75 and over, you can't accept any non-mandated contributions. For some types of contributions, you can only accept the contribution if the member quotes their TFN.
Contribution caps
Contribution caps apply to contributions made for a fund member in a financial year. Contributions that are within the caps generally receive significant tax concessions. There are different caps for:
- concessional contributions - such as employer contributions and personal contributions that your members claim as an income tax deduction
- non-concessional contributions - such as personal contributions that your members don't claim as an income tax deduction.
The caps are indexed annually.
In specie contributions
In specie contributions are contributions to your fund in the form of an asset, rather than money or cash.
Generally, you can't intentionally acquire assets (including in specie contributions) from related parties of your fund. However, there are some significant exceptions to this rule, including:
- listed shares and securities
- business real property (land and buildings used wholly and exclusively in a business).
Rollovers and transfers
A member's super benefits can generally be rolled over or transferred within the super system with their consent.
If you accept a rollover of benefits from another super fund, that fund can ask you to show that your fund is a complying fund before processing your request.
Employment termination payments
Most employment termination payments (previously known as eligible termination payments) can no longer be rolled over into super. However, some transitional arrangements apply.
Generally, transitional termination payments are employment termination payments received after 1 July 2007 that an employee was entitled to receive in an employment contract that existed before 10 May 2006. Transitional termination payments need to be made before 1 July 2012 and can be contributed or rolled over into a super fund.
Reporting, record keeping and administration
As a trustee of your SMSF, you need to:
- appoint an approved auditor to audit your SMSF
- lodge your SMSF annual return each year by the due date, providing all the information required and paying the supervisory levy
- lodge an accurate Rollover benefits statement (NAT 70944) when rolling benefits into other funds
- keep comprehensive records
- minutes outlining investment decisions and how decisions are made
- the transactions of your SMSF
- reasons for decisions on the storage of collectables and personal use assets
- annual operating statements and annual statements of your SMSF's financial position
- who the trustees of your SMSF are and their consent to act as trustees (trustee declarations)
- copies of returns and information provided to members
- required income tax and deduction documentation (including any actuary certificates)
- notify us of any change of details for the SMSF - for example, a change in trustee or members.
Appoint an approved auditor
As a trustee of an SMSF, you're required to appoint an approved, independent auditor to audit your fund each year, at least 30 days before the auditor must give a report to the trustee. The auditor report must be given to the trustee by the day before the fund is required to lodge its SMSF annual return. Your auditor is required to:
- examine your fund's financial statements, and
- assess your fund's overall compliance with the super law.
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You should appoint your auditor early to allow enough time to do the audit and lodge the SMSF annual return on time.
An audit is still required even if no contributions or payments were made in that income year.
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Before an auditor can start to audit, you or your SMSF professional need to prepare information about your accounts and transactions for the previous financial year - this information is then sent to the approved auditor.
SMSF annual return
All SMSFs need to lodge an SMSF annual return with us each year, in order to:
- report income tax
- report super regulatory information
- report member contributions
- pay the supervisory levy.
The lodgment and (where applicable) payment dates are:
- for SMSFs that are not new registrants and prepare their own annual return - 31 October
- for new registrants - 28 February
- for returns prepared by tax agents - according to the tax agent lodgment program.
You can't lodge the SMSF annual return until the audit of your SMSF has been finalised, because information from the audit report is required to complete the regulatory information in the return.
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Failure to lodge your SMSF annual return by the due date can result in penalties and the loss of your SMSF's tax concessions.
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Newly registered self-managed super funds
If your fund is newly registered but has not begun operating, you may not have to lodge an annual return or pay the supervisory levy of $180.
You can ask us to cancel the ABN, which can be re-registered when the fund has assets that are set aside for the benefit of members. If the fund has now received a contribution or a rollover amount, you can notify us in writing or by fax on 1300 550 356 advising us that the SMSF:
- was registered in the financial year
- was not operating by 30 June
- had not received contributions or rollover amounts by 30 June
- has now received contributions, including the date that the first contribution was received by the fund.
Write to us at:
Australian Taxation Office
PO Box 1128
Penrith NSW 2740
Amending your SMSF annual return
To amend any part of your SMSF annual return, you need to lodge a complete amended return:
- Order or print out the paper version of the annual return (NAT 71226) - you need to use the paper form, whether the original return was lodged using a paper form, or electronically using ELS.
- Complete the form in full, not just the parts you want to amend.
- Let us know it's an amendment by checking 'Yes' at question 5.
- Send the form to us.
The SMSF annual return is more than an income tax return. You also provide important regulatory information and contributions information about each member. This information is inter-related - changing one label on the form is likely to require labels in other sections of the form to be amended too. For this reason, we need you to always complete the form in full, not just the parts you want to amend; and provide contributions information for all members, not just the member whose contributions you need to change.
For example, suppose an SMSF annual return overstates the employer contributions reported for one of its two members by $1,000 due to an arithmetic error made when preparing the return. To correct the error, a new annual return is lodged reporting all information as previously reported, but with amendments to:
- income and tax information at sections B and D
- member information at section F
- assets and liabilities at section H.
Rollover benefits statement
When rolling over benefits and current year contributions, you need to complete a Rollover benefits statement (NAT 70944) and provide copies to the receiving fund (or funds) and the member whose benefits are being rolled over.
The Rollover benefits statement allows the receiving fund to:
- apply the correct income tax treatment to the components rolled over
- maintain the preservation status of the benefits rolled over
- report correctly to us - on the Member contributions statement or in the SMSF annual return - any contributions included in the rollover that were made in the same financial year as the payment occurred.
You need to check that the rollover is to a complying fund.
Record-keeping requirements
One of your responsibilities as a trustee of an SMSF is to keep proper and accurate tax and super records to manage your fund efficiently.
It's a good idea to take minutes of all investment decisions, including:
- why a particular investment was chosen
- whether all trustees agreed with the decision.
If, as one of the fund's trustees, you invest the SMSF's money in an investment that fails, the other trustees could take action against you for failing to be diligent in your duties. However, if your investment decision was recorded in meeting minutes that were signed by the other trustees, you will have a record to show the other trustees agreed with your actions.
You need to make certain records available to your fund's approved auditor when they audit your fund each year. You may also need to provide accurate records to the ATO if we ask to see them.
You need to keep the following records for a minimum of five years:
- accurate and accessible accounting records that explain the transactions and financial position of your SMSF
- an annual operating statement and an annual statement of your SMSF's financial position
- copies of all SMSF annual returns lodged
- copies of any other statements you are required to lodge with us or provide to other super funds.
You need to keep the following records for a minimum of 10 years:
- minutes of trustee meetings and decisions (where matters affecting your fund were discussed)
- reasons for decisions on the storage of collectables and personal-use assets
- records of all changes of trustees
- trustee declarations recognising the obligations and responsibilities for any trustee, or director of a corporate trustee, appointed after 30 June 2007
- members' written consent to be appointed as trustees
- copies of all reports given to members.
Don't forget that income tax record-keeping requirements also need your attention - especially documents on deductions, capital gains tax and losses.
Notifying us if there is a change
As a trustee of an SMSF, you need to notify us within 28 days if there is a change in:
- trustees
- directors of the corporate trustee
- members
- contact details, such as contact person, phone and fax numbers
- address - the postal, registered address, or address for service of fund notices.
You also need to notify us within 28 days if the fund is being wound up.
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To tell us about changes to your SMSF, you can:
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You can't use the SMSF annual return to tell us about a change in the structure of your SMSF.
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Accessing your super
The super in your fund is intended for your members' retirement and generally can't be accessed until then.
Preserved and non-preserved benefits
Most of the super held in your fund will be in the form of preserved benefits. These must be preserved in the fund until the law and your fund's trust deed allows them to be paid.
Preservation age
Preservation age is generally the age that a person can access their super benefits. It ranges from 55 to 60 years of age, depending on the person's date of birth.
Conditions of release
Voluntary cashing of preserved benefits generally depends on the member reaching their preservation age and meeting one of the conditions of release - for example, retirement.
Compulsory cashing of benefits is required only if a member dies. Your member's benefits need to be paid out as soon as possible after the member's death.
Early access to benefits
There are a few conditions of release that permit early access to super benefits before a member reaches their preservation age, but these occur only in limited circumstances, such as terminal illness or permanent incapacity.
Paying benefits
Payment of benefits is usually as a lump sum or an income stream (that is, a pension).
Preserved and non-preserved benefits
All contributions made by or on behalf of a member, and all earnings for the period after 30 June 1999, are preserved benefits. Employer eligible termination payments (before 1 July 2007) rolled over into a super fund are also preserved benefits.
Preserved benefits may be cashed voluntarily only if a condition of release is met, and then subject to any cashing restrictions imposed by the super laws. Cashing restrictions tell you what form the benefits need to be taken in.
There are two other types of benefits:
- restricted non-preserved benefits - these can't be cashed until the member meets a condition of release. They are generally subject to the same cashing restrictions as preserved benefits.
- unrestricted non-preserved benefits - these don't require a condition of release to be met, and may be paid upon demand by the member. They include, for example, benefits for which a member has previously satisfied a condition of release and decided to keep the money in the super fund.
Preservation age
Preservation age is generally the age that you can access your super benefits. A person's preservation age depends on their date of birth, as set out in the following table:
Date of birth
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Preservation age
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Before 1 July 1960
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55
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1 July 1960 - 30 June 1961
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56
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1 July 1961 - 30 June 1962
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57
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1 July 1962 - 30 June 1963
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58
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1 July 1963 - 30 June 1964
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59
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After 30 June 1964
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60
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Several of the conditions of release require that the member has reached their preservation age.
Conditions of release
Conditions of release are the events your member needs to satisfy to withdraw benefits from their super fund. The conditions of release are also subject to the rules of your SMSF (as set out in the trust deed). It's possible that a benefit may be payable under the super laws, but can't be paid under the rules of your SMSF.
The most common conditions of release for paying out benefits are:
- Retirement: Actual retirement depends on a person's age and, for those less than 60 years of age, their future employment intentions. A retired member can't access their preserved benefits before they reach their preservation age.
- Transition to retirement (attaining preservation age): Members who are under the age of 65 and have reached preservation age, but remain gainfully employed on a full-time or part-time basis, may access their benefits as a non-commutable income stream.
- Attaining age 65: A member who reaches age 65 may cash their benefits at any time - there are no cashing restrictions. (It's not compulsory to cash out a member's benefits merely because they've reached a certain age.)
There are a number of other circumstances in which benefits can be released, such as incapacity, severe financial hardship, temporary residents leaving Australia, terminal illness or injury, and terminating gainful employment. Some of these permit early access to benefits before reaching preservation age. There are specific rules for each of these, and some have restrictions on the way the benefits can be cashed.
Rollovers and transfers
Generally, rollovers or transfers to other super funds don't require a condition of release to be satisfied, subject to the governing rules of your SMSF. However, money rolled over from an employer into a super fund (before 1 July 2007) is preserved and can generally be cashed once the member reaches preservation age and meets a condition of release.
Early access to benefits
Early access or release of preserved benefits and restricted non-preserved benefits is permitted in very limited circumstances and may include:
- terminal illness or injury
- tightly restricted compassionate grounds
- permanent incapacity.
For information about releasing super early under severe financial hardship, on compassionate grounds, permanent or temporary incapacity, or due to a terminal medical condition, contact your super fund first.
You can also refer to Conditions of release to access your super before retirement (including natural disasters).
For more information about APRA and early-release applications:
- visit their website at apra.gov.au
- phone them on 1300 131 060.
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Trustees should consider their obligations when allowing/considering early access, such as:
- providing the governing rules of your fund allow it, you must ensure that the applicant/member has met a condition of release before you release any funds
- when paying a benefit, you need to consider the administrative obligations, refer to Reporting and registering requirements
- if a benefit is unlawfully released, the ATO may apply significant penalties to you, your SMSF, and the recipient of the early release - refer to Accessing your super.
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Setting up or using an SMSF to gain improper early access to super is illegal. If a benefit is unlawfully released, the ATO may apply significant penalties to you, your SMSF, and the recipient of the early release.
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Beware of promoters who claim they can help you access your retirement benefits, such as for buying a house, car or a holiday, or for solving your financial problems. These schemes are illegal and there are severe penalties if you access your super before you're legally entitled to.
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For more information, refer to Running a self-managed super fund (NAT 11032).
For more detailed information about access to benefits on compassionate grounds contact the Australian Prudential Regulation Authority (APRA) Infoline on 1300 131 060.
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Self-managed super funds - home
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Paying benefits
Benefits from a super fund may generally be paid as a lump sum, income stream (pension) or annuity, provided the member has satisfied a condition of release - for example, retirement.
When paying benefits you may have administrative obligations, such as withholding tax or obtaining an actuary's certificate.
Income streams
Income streams need to be either account-based or non account-based.
Account-based income streams have the following general characteristics:
- they require a minimal annual payment to be made with no maximum amount stipulated
- they can only be commuted in particular circumstances
- they can't have a residual capital value
- they can't be paid to a non-dependent beneficiary.
A new account-based transition to retirement income stream may be started on or after 1 July 2007. These income streams need to meet the standards of ordinary account-based income streams, but are also required to have a maximum annual payment limit of 10% of the account balance. Commutations of these pensions can't be taken in cash, except in limited circumstances.
Non account-based income streams have the following general characteristics:
- they may be paid for life or for a fixed term of years
- they can only be commuted in particular circumstances
- certain non account-based income streams may have a residual capital value
- they can't be paid to a non-dependent beneficiary.
Before starting to pay any income stream, we recommend that you seek the advice of a professional, such as an accountant, financial planner or actuary.
PAYG withholding and administrative obligations
You may have to withhold tax from benefit payments - this happens if the payment is to a member less than 60 years of age, or to a member 60 years of age or more and the benefit is from an untaxed source.
If you have to withhold tax from a benefit payment to a member, you need to:
- register for pay as you go (PAYG) withholding
- obtain a Tax file number declaration (NAT 3092) from the member
- issue a PAYG payment summary form to the member
- lodge a PAYG withholding payment summary statement (NAT 3447) with the ATO.
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You don't need to provide a payment summary if the payment is a lump sum paid because the member has a terminal illness or injury.
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If you're paying income streams to members, you can claim a tax exemption for fund income that is related to paying the fund's current pension liabilities. To do this, you may need a certificate from an actuary to work out the amount of exempt income from assets that support the pension payments.
Understanding tax and SMSFs
SMSFs are subject to income tax, but receive concessional treatment, provided they are complying funds. A complying SMSF's assessable income is generally taxed at a rate of 15%, while for a non-complying fund the rate is 45%. The most common types of assessable income for complying SMSFs are:
However, certain types of SMSF income are taxed at different rates:
A complying SMSF is entitled to claim deductions for expenses, such as the supervisory levy and auditor fees, that are incurred in gaining or producing assessable income.
SMSFs must register for GST if they have a GST turnover of $75,000 or more. Most SMSFs don't have this much GST turnover and so don't need to register.
Assessable contributions
Certain contributions received by a complying SMSF are included in its assessable income and are usually taxed as part of the SMSF's income at 15%. These 'assessable contributions' include:
- employer contributions (including contributions made under a salary sacrifice arrangement)
- personal contributions which the member has notified you they intend to claim as a tax deduction
- generally any contribution made by anybody other than the member, with limited exceptions, such as spouse contributions and government co-contributions.
Exempt current pension income
Ordinary income and statutory income that a complying SMSF earns from assets held to provide for super income stream benefits is exempt from income tax - this is called exempt current pension income (ECPI). ECPI does not include assessable contributions and non-arm's length income,
You can claim the tax exemption in your SMSF annual return once your SMSF begins paying super income stream benefits (commonly referred to as pensions). However, your SMSF is not automatically entitled to the exemption. To claim the exemption in the SMSF annual return, there are steps you must take prior to starting payment of the super income stream benefit, such as ensuring that all of the SMSF's assets are revalued to their current market value.
If an SMSF has income tax losses (not capital losses), the amount of the loss should be reduced by the amount of the net ECPI - this is the amount of ECPI less any expenses that were incurred in deriving ECPI. The remaining tax losses can be offset against any assessable income of the SMSF or carried forward to the next financial year.
Capital gains
Your SMSF's assessable income includes any net capital gains, under the capital gains tax (CGT) provisions. A net capital gain is:
- the total capital gain for the year, less
- total capital losses for that year and any unapplied capital losses from earlier years, less
- the CGT discount and any other concessions.
Complying SMSFs are entitled to a CGT discount of one-third, if the relevant asset was owned for at least 12 months.
A capital loss - for example, losses on the sale of shares - is not an allowable deduction, and is only able to be offset against capital gains. If capital losses are greater than capital gains in an income year, they must be carried forward to be offset against future capital gains.
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For more information, refer to Capital gains tax essentials.
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Member assets
A member may decide to sell an asset to generate cash to make contributions to your super fund, or contribute assets, rather than cash, to your super fund - this is known as an 'in specie' contribution. In either situation, the member will trigger a capital gains tax (CGT) event when they sell or transfer the asset - this means the member may have to pay CGT.
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Self-managed super funds - home
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Non-arm's length income
Non-arm's length income is taxed at 45%.
SMSFs are required to invest on a commercial, 'arm's length' basis. The purchase and sale price of fund assets should always reflect a true market value for the asset, and the income from assets held by your fund should always reflect a true market rate of return. SMSFs generally can't:
- buy assets from related parties of the fund, such as fund members and their associates
- lend to or invest in a related party of the fund (including a related trust) more than 5% of the fund's total assets.
Broadly, an amount of ordinary income or statutory income is non-arm's length income of a complying SMSF if:
- it's derived from a scheme or investment in which the parties weren't dealing with each other at arm's length, and
- that amount is more than the amount that the SMSF might have been expected to derive if those parties had been dealing with each other at arm's length.
Income derived by an SMSF as a beneficiary of a discretionary trust is also non-arm's length income.
Deductions
Like other taxpayer entities, a complying SMSF is entitled to deduct from its assessable income any losses or outgoings that are:
- incurred in gaining or producing assessable income
- necessarily incurred in carrying on a business for the purpose of gaining or producing such income.
Expenses that a complying SMSF can deduct include:
- supervisory levy
- insurance premiums for death and disability
- up to 1 July 2011, insurance premiums paid for a policy insuring against any form of permanent disability are fully deductible
- after 1 July 2011, insurance premiums will only be deductible to the extent that the policies have the necessary connection to a liability of the fund to provide permanent incapacity benefits and not other types of disability benefits
- auditor fees
- interest - a complying SMSF is generally prohibited from borrowing money or maintaining an existing borrowing of money, but interest incurred in gaining or producing assessable income would be deductible.
Losses and outgoings relating to exempt current pension income are generally not deductible because they are incurred in earning exempt income.
Goods and services tax (GST)
If you carry on an enterprise, you must register for GST if your GST turnover is $75,000 or more.
However, most SMSFs don't have to register for GST because most SMSFs mainly make input-taxed supplies, which don't count towards your GST turnover.
Input-taxed supplies include financial supplies and supplies of residential premises by way of rent or sale.
However, you may choose to register for GST.
In deciding whether to register voluntarily, you should consider:
- any increases in time or costs for record keeping and reporting
- the fact that GST applies to taxable sales and you could claim GST credits for creditable purchases
- whether you can claim reduced GST credits on your reduced credit acquisitions.
Your SMSF must register for GST if it makes supplies, other than input-taxed supplies, that exceed the GST turnover of $75,000.
Winding up an SMSF
To wind up your SMSF, you need to:
There are a number of reasons why you might need to wind up your SMSF:
- All the members and trustees may have left the SMSF - for example, they may have died.
- All the benefits may have been paid out of the fund.
- The fund may no longer meet the definition of an 'Australian superannuation fund' because the trustees have moved overseas permanently.
- You may have found that you're not ready for the complexity of the law surrounding SMSFs and the time it takes to manage an SMSF.
In some cases, you'll be able to pay benefits to members when you wind up your SMSF. In other cases, the members won't be able to, or won't want to, take their benefits, so you'll need to roll them over to another super fund.
Notify us
You need to let us know within 28 days of the fund being wound up.
You need to do this in writing and include:
- the name of your SMSF
- the Australian business number (ABN) of your SMSF
- a contact person, including their name, phone number and fax number
- the date you wound up your SMSF.
Send your letter to:
Deal with members' benefits
You need to make sure that:
- you deal with members' benefits according to the super law and the trust deed
- your fund has no assets left once it has been wound up.
If you've wound up your fund and haven't met a condition of release, you can't access your super - your super needs to be rolled over into another complying super fund.
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There are serious penalties for using your super before you are legally allowed.
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There may be capital gains tax implications from the disposal of assets when you are paying benefits or rolling over benefits to another fund. For more information, refer to Capital gains tax essentials.
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Self-managed super funds - home
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Arrange a final audit of your fund
When winding up your fund, you still need to have an audit completed before you can lodge your annual return.
Complete your reporting responsibilities
You need to lodge your SMSF annual return and complete all labels at item 9, 'Was the fund wound up during the income year?'
You must also finalise payment of any outstanding tax liabilities at this time and lodge any outstanding returns from previous years.
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For more information, refer to Self managed superannuation fund annual return instructions (NAT 71606).
If you need to lodge a return for any year before 2008, call us on 13 10 20 for help.
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It's important to wind up your fund correctly - if you don't lodge the required reports, it's likely our compliance team will contact you to do so. If you fail to carry out these responsibilities, you may be selected for further compliance activities. You may also be subject to penalties.
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Confirmation of your wound-up fund
To confirm that you've met all of your tax responsibilities, we'll send you a letter stating that we have:
- cancelled your SMSF's ABN
- closed your SMSF's record on our systems.
Don't close your SMSF bank accounts until you've received this confirmation from us - otherwise, you won't be able to bank any refund you're entitled to.
Last Modified: Wednesday, 12 June 2013
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