What are the responsibilities of an SMSF trustee?

SMSF trustee obligations that fall under the super rules

These can be divided broadly into the three groups below. But don’t forget you can get help:

• Firms like Heffron can prepare returns for you (like your accountant might prepare your personal tax return) and make sure you have all the right records.
• A financial adviser can help you decide on your investments and insurance.

The ‘self managed’ part of SMSF is more about being in control of the decisions. It doesn’t mean you have to do everything yourself.

Let’s get a bit more specific about the three groups of obligations under the super laws.

The ‘sole purpose test’ or ‘why are we here?' rule

All super funds (including SMSFs) pay quite low rates of tax. Governments have always been happy to do that because by building up super, you're helping to support yourself and your family when you stop working rather than relying on the age pension.

But it's important that your SMSF is clearly set up and managed for that purpose – i.e. it exists to help you save for retirement or protect your family if you die.  While it's allowed to do other things as well, this central purpose (called the "sole purpose" in the super law) is important and should guide every decision you make for your SMSF.

For example, Joe has an SMSF and decides to invest some of his money in his friend's business. He doesn't actually hold out much hope for the business but he'd like to support his friend. He's been lucky over the years and has built up a large super balance so wants to use some of that money to help his friend.  

A decision like that isn't consistent with the sole purpose test at all. Joe isn't making this investment decision to secure his retirement; he's trying to help a friend. He's free to do that with his own money but not the money he's put into his SMSF.

General SMSF standards

The super laws set out some general rules about how trustees are expected to behave. While they can sound confusing, they actually make a lot of sense.  The list below (with a translation) doesn't cover everything, but it captures the main responsibilities you have as a trustee of an SMSF.

Specific SMSF rules

As well as the sole purpose test and general standards, trustees of SMSFs also have to follow a lot of quite specific rules. Most of these also apply to all other funds but with those funds, someone else (their trustee) is responsible for making sure they’re followed.

For example, there are rules about:

• Who can put money into the fund and when.
• When you can take super out of your SMSF.
• The sorts of investments your fund can make. While most mainstream things are fine (shares listed on a stock exchange, managed funds, properties, term deposits and many more) there are some investments that are not allowed or where there are extra rules. For example, SMSFs can buy paintings. But if they do, there are a whole lot of rules to follow.
• From whom your SMSF can buy its investments. For example, many people sell things they already own (such as shares they hold personally) to their SMSF. There is a very small list of investments that can be transferred like this.
• Who your SMSF can deal with when it comes to investments. For example, your SMSF can own a home but it can’t rent it out to a family member.
• Who it can pay for services. For example, SMSF trustees can’t be paid for being a trustee. Any time work for your SMSF is being done by you or someone you’re associated with, you should check what’s allowed.

By and large, if you’re just doing “normal” things – like having contributions paid in from an employer, investing in mainstream things like the ones listed above, not including your SMSF in any financial dealings you have with other people in your family or business you’ll be fine.

This is where partnering with Heffron is so useful – you can check in with us any time you want to do something new.

You may also be interested in...

• Roles in an SMSF
• What is the Sole Purpose Test?
• Pros and cons of an SMSF

This article is for general information only. It does not constitute financial product advice and has been prepared without taking into account any individual's personal objectives, situation or needs. It is not intended to be a complete summary of the issues and should not be relied upon without seeking advice specific to your circumstances.