Who is eligible to set up an SMSF together?
Couples setting up an SMSF together is in fact the most common structure as shared investing comes with lots of great benefits.
But there are other options when it comes to sharing your SMSF. They just come with some extra considerations.
Business partners can set up an SMSF together
This is reasonably common – particularly if the SMSF is set up to buy an asset that’s used in the business (for example, the business premises). There is an extra rule to be aware of: no member of the fund can be an employee of another member unless they are relatives. It’s acceptable if the two people are both directors of the company which owns the business but not if one is a director and the other isn't. This would only be permitted if the two people were relatives. It’s a good idea to get advice if you think your SMSF might not meet this rule.
Children can belong to their parents’ SMSF as Members
This is true no matter how old they are. If the child is under 18, however, they can’t be a trustee. Generally, their parent(s) would be trustees on their behalf. Conversely, if the child is over 18, they must be a trustee unless they’ve specifically agreed to have someone else do it in their place by granting them an enduring power of attorney.
People who are mentally disabled can belong to an SMSF
To be a director of a company or trustee of an SMSF you have to be able to make legal decisions. Someone who can’t do this can’t be in charge of their own SMSF but they can still belong to one. Their legal guardian would generally be the trustee or director in their place.
People who live outside Australia can belong to an SMSF
Generally SMSFs are for people who live in Australia but it is possible for overseas residents to belong to a fund too. However, there are extra rules. It’s extremely important to get these right or there will be disastrous tax consequences. This is definitely a time to get advice and unless you are confident you will be able to meet them you should be careful about setting up your SMSF if any of the members live overseas.
Some people are not eligible to have an SMSF
Some people are specifically prohibited from being a trustee. Under these circumstances, they’re not allowed to have someone else be the trustee in their place either – so they’re effectively ruled out of having an SMSF at all.
This includes people who:
- have ever been convicted of an offence involving dishonesty
- have ever been subject to something called a “civil penalty order” imposed by superannuation law (something that’s only imposed rarely on people who have broken particularly key rules)
- are considered insolvent under administration
- are an undischarged bankrupt
- have been disqualified by a regulator e.g. ATO or APRA
Some people are fine to be a trustee when they start their SMSF but fall into one of the categories above later. If that’s the case, it’s likely they’ll need to turn their SMSF into what’s known as a small APRA fund (which has a professional trustee), move their super to another (retail or industry) fund and possibly even wind up their SMSF.
Consider this before you combine superannuation
A few things to consider before you set up an SMSF with other people:
- Generally, all members also have to be trustees (unless they're under 18 years of age).
- You all share the responsibilities of running an SMSF including all decision-making.
- While you can choose different investments within the same fund, you can’t operate completely independently.
- If you want to change things later or have separate funds, someone will have to transfer out. This means assets will need to be sold or transferred to a new fund with potential capital gains tax and stamp duty consequences.
