Basic Rules for Trustees of an SMSF

Basic Rules for SMSF Trustees

Is a SMSF right for you?
Here are some basic guidelines for Trustees of an SMSF:

01

Build your SMSF Support Team

You'll need an Accountant, an SMSF Auditor, a Financial Advisor, and possibly a Lawyer who can work together to support the Trustee of the SMSF.

02

Get your Personal Estate Planning in Place Now

Get your own financial house in order and establish your Will, Power of Attorney and Power of Enduring Guardianship documents.

03

Get to Know The Rules for Managing your SMSF

The ATO has useful information and instructional videos to assist Trustees of SMSFs you can see here.

04

Create your Investment Plan and Work on a Strategy

The ATO states, ‘SMSFs are required to prepare and implement an investment strategy to help meet their investment and retirement goals. The investment strategy is not designed to be a 'set and forget’ document but rather a strategy you continuously review to ensure you are meeting your retirement plans.’

05

Maintain the Liquidity Needs of your SMSF

The Trustee of an SMSF is required to regularly consider the liquidity needs of the fund and its members. As the purpose of your SMSF is to build up a pool of assets to sustain your lifestyle throughout your retirement, if the fund’s assets are primarily held in property, being a bulky assets, this may not give you the required liquidity.

06

Document your Decisions, Meetings & Strategy Reviews

Your SMSF Auditor will need to ‘evidence you are running a complying SMSF’ and this will require documentary evidence to support your good decisions.

07

Plan Ahead for the future transfer from the Accumulation Phase to the Pension Phase

Understand how ‘lumpy’ (relatively illiquid) assets may affect the funds ability to make the annual minimum drawdown each year in pension phase, to maintain the funds tax-exempt status, so a strategy to manage this phase will be needed ahead of time.

08

Stay Connected to Good Advice

The SMSF legislative environment continues to change and develop so Trustees of an SMSF need a way to maintain their knowledge of key changes and requirements. This is where building a long-term relationship with your advice team contributes significant value to your SMSF strategy.


older male small, business owner with SMSF

Self Managed Super Funds 101

The ways to save and reach your financial goals are as varied and flexible as the people saving for them.

If you want greater control over your super and more flexibility than you would get with a conventional super fund, then a Self Managed Superannuation Fund (SMSF) could be an attractive option. However, they are more complex and also strictly regulated so there are new skills and learnings required to successfully use an SMSF as your retirement savings vehicle.

An SMSF is not for everyone

A self-managed super fund (commonly referred to as an SMSF) allows you to manage your own superannuation investments for your retirement. But let's be clear: setting up your own superannuation isn’t right for everyone, so it’s important to understand the basics before getting started. Sapience Financial provides ongoing investment management and guidance for SMSF members, via Investment strategies uncorrelated to the market, compliant documentation and Managed Discretionary Account (MDA) structures. 

An SMSF is a superannuation fund that you manage yourself

Most people have their super with a retail super fund that's managed by a third party – a fund manager, a large corporation, or an industry body. You can also manage your own super fund – this is known as an SMSF.

How does an SMSF work?

An SMSF works the same as any regular larger superannuation fund, but there are some differences in how they are regulated by the government and how they are administered. One key difference between SMSFs and larger funds is that they must have no more than six members. In addition, the fund is run by all the members collectively.

Who can be a Member?

An SMSF can have no more than six members at any one time who are generally, though not always, members of the same family. A member cannot be an employee of another member unless they are related. 

Who can be a Trustee?

An SMSF is in essence just a trust and like any trust is run by the trustees.

There are two different SMSF Trustee structures.

  1. Members are appointed as Trustees in their individual capacity, or
  2. A company is appointed as the trustee, with the SMSF’s members being the directors of that company, referred to as a corporate trustee.

In both cases, it’s the members who run the fund, as a general rule all members are either trustees themselves or directors of the corporate trustee, and trustees cannot be paid for carrying out their trustee duties.

Who can't be a Trustee of an SMSF?

Certain people cannot act as an individual trustee or a director of a Corporate Trustee of an SMSF – this includes individuals who have been:

  • convicted of an offense involving dishonest conduct
  • subject to a civil penalty under the superannuation legislation
  • insolvent or under administration (an undischarged bankrupt)
  • persons formally disqualified from acting as a trustee.

There are additional rules for Trustees

All trustees are obligated to abide by the fund’s trust deed and the superannuation laws. Directors of corporate trustees will also have to comply with the company’s constitution and the laws applying to companies.

  • SMSF Trustees are also required to consider the insurance needs of members in formulating the investment strategy. Given that quite often the trustees of an SMSF are also the members of the SMSF, this is about considering whether you have sufficient insurance of your own, and if not, whether you should acquire more cover through your super.
  • The SIS Act in Regulation 4.09 requires SMSF trustees to consider the liquidity risks of the fund and its ability to meet obligations as they fall due.

Depending on the type of investments in your SMSF, you should also consider if you need the SMSF to take out other types of liquidity insurance. This could be an important consideration if you hold property inside the SMSF.

SMSF trustees must comply with the legislative requirements for managing super-account liquidity. Use our liquidity worksheet to help you begin to map out your SMSF liquidity strategy.

So what makes a good SMSF investment strategy?

It's likely one that aligns with the future goals of the members (the trust deed should cover this) and what they are trying to achieve and ensures this is done with appropriate consideration of the risks in achieving these goals. It should also comply with super legislation and the sole purpose test.

How we can help

Having a strategy for your superannuation is an important part of providing for yourself and your family into retirement while reducing the pressure on your business as the sole source of your future retirement funding too.

Contact us for a confidential chat about your SMSF needs.

Related: Featured SMSF Articles

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