Self Managed Super Fund deed – fully updated for the Budget
Our Self Managed Super Fund deed complies with the 19 main changes to SMSF Deeds. This is under the Budget:
- Binding death benefit nominations (BDBNs) given the High Court’s landmark decision in Hill v Zuda  HCA 21
- Contributions given the removal of the ‘Work Test’ for those between 67 and 75 years old from 1 July 2022
- Corporate collective investment vehicles (CCIVs), cryptocurrency, non-fungible tokens (NFTs) and blockchain technology, given the expanding investment markets available to SMSFs.
- Internally ‘rollback’ pensions to accumulation for up to 6 members
- Segregate assets between accumulation and pension phases
- Reject contributions
- Refund contributions;
- Deal with excess transfer balance tax and excess non-concessional contributions
- Allow income streams and Account Based Pension (grandfathered)
- Specify guardians for incapacity and death
- Identify the Power of Attorney when living overseas for more than 2 years
- Resettle pensions with flexible timing without mingling with accumulation account
- Allow reversionary beneficiary nominations
- Provide for CGT relief
- Deal with segregated and unsegregated assets
- Cease or keep Transition to Retirement Income Streams
- Calculate member balances, across different funds
- Calculate internal pension rollbacks to accumulation
- Allows for an unlimited number of members (currently the law allows 6 members)
These are all required to give maximum flexibility to your accountant and adviser.
What is a Self-Managed Super Fund deed?
A Self Managed Super Fund Deed holds your retirement money. This is called superannuation. The SMSF gives you greater control.
The Australian government provides generous tax concessions from operating a ‘compliant’ self-managed superannuation fund. You comply if:
- your fund has a maximum of 6 members. You can have 1, 2, 3, 4, 5 and 6 members.
- each member is a trustee. Each trustee is a member.
- Instead of having all the members, as trustees, you can have a company. This is called a SMSF corporate trustee. Each member must be a director of the company. And only members are directors.
- You can not have someone you employ as a member with you. This is unless they are related to you.
- The trustee is a volunteer. You can’t take fees for performing the job of trustee.
- All members and trustees should be Australian residents, otherwise, you face complexity.
Is a Self-Managed Superannuation Fund a ‘trust’
A SMSF fund is a ‘trust’. The ‘trustee’ of the super fund holds the ‘member’s balance’ on trust. This is on trust for the ‘member’. Because the super fund is a trust, it’s governed by the rules of equity. So as well as the Superannuation laws the SMSF and the SMSF Deed must also abide by the laws of trusts and equity.
Can a SMSF only have one member?
Yes, a SMSF can have 1 to 6 members.
- The members must also be the trustees; or
- the members appoint a SMSF Corporate Trustee company to be the SMSF trustees. In which case all the members (and only those members) are the directors of that special purpose company.
The trustee or trustees run the SMSF. This is for the benefit of the members. The trustee is one company or humans.
But if you only have one member of your SMSF then:
- the member must find another person to be co-trustee. So the Trustee of the SMSF is the member and this second person; or
- the sole member builds a SMSF Corporate Trustee Company. And the member is the only director of that company
Most people opt for number 2. A Corporate Trustee Company is also most common for all SMSF. This is whether you have 1 or more members.
So we see that for a single member SMSF, the member must either be the sole director or have two directors. The other director is either:
- related to the member; or
- not an employer of the member.
If you do not opt for a SMSF Trustee company, then for a single member SMSF, there are two individual trustees. The other human trustee is either related to the member or, if not related, have no employment relationship with the member.
Self Managed Superannuation Fund Guide
Written by Barbara Smith AM, Dr Brett Davies, Dr Ed Koken I am honoured to have joined forces with well-known and award-winning authors Barbara Smith AM and Dr Ed Koken to produce the fully revised book: Self Managed Superannuation Fund Guide.
This practical, plain English guide is a valuable tool for everyone involved in SMSFs. This includes trustees, members, lawyers, accountants and advisers. It is tax deductible when the book is used for looking after your SMSF.
You can purchase your own copy directly from the publisher and get it updated continually online here.
ORDER TODAY, it helps you complete your individual and SMSF tax returns.
Why is it important to read the book: SMSF Guide?
The Australian book Self Managed Superannuation Fund Guide is important for individuals who are interested in managing their superannuation funds. It is important to digest the advice in this book:
Understanding the rules and regulations:
Self-managed superannuation funds are subject to specific laws and regulations in Australia. The book provides detailed information on these rules. These include contributions, investments, taxation, compliance, and reporting requirements. Understanding these regulations is crucial to ensure compliance and avoid penalties.
Why must a single member SMSF require two human trustees or a SMSF Company Trustee?
The Superannuation laws requires for a single member fund that you have two human Trustees. (Or you can have a Corporate Trustee for an SMSF.)
It is silly and wrong to argue that the requirement for a second human trustee is because of trust law. A trust requires that the trustee and the beneficiary be different. A trust cannot exist when the trustee and the member are the same person. That is a correct statement of trust law. But the SMSF holds the assets for not just the member but for other purposes such as dependants when the member dies.
Rather, there is a better reason as to why the government forces you to have a second human trustee in a single member SMSF fund. When the member dies there is still a trustee that continues to look after and administer the SMSF. This also works if the member loses mental capacity or leaves Australia.
Complies with new TRIS rules
The treatment of transition to retirement income streams and limited recourse borrowing arrangements.
TRIS is no longer able to benefit from the exempt current pension income status. This is on the earnings supporting a TRIS.
If a pension started as a TRIS, the ECPI exemption never applies. This is even where the pensioner subsequently satisfied a condition of release with no cashing restrictions.
Our Self Managed Super Fund deed fully complies with the new rules.
Self Managed Super Fund complies with the latest Auditing Standards
Self-Managed Super Funds are audited every financial year. The auditor relies on Auditing and Assurance Standards Board’s (AUASB) Standards.
The new Standard identifies, clarifies and summarises the existing responsibilities which approved self-managed superannuation fund (SMSF) auditors use when conducting SMSF audit engagements. It also provides guidance to the auditor on matters which the auditor considers when planning, conducting and reporting on the financial and compliance engagement of an SMSF audit.
The appendices to GS 009 includes an example engagement and representation letter, illustrative trust deed checklists and financial audit procedures, and illustrative examples of threats to the auditor’s independence.
Legal Consolidated’s Self-Managed Superannuation Deed is updated to fully comply with the Standard. Because you are building your SMSF at our website you also receive a signed letter on our law firm’s letterhead to confirm compliance with the Standard.
How do I register a Self-Managed Superannuation Fund?
Firstly, build the SMSF Deed on our website, print out and the trustee signs. Secondly, within 60 days register the SMSF with the ATO. You do this by merely applying for an Australian business number (ABN). Our covering letter, that comes with the SMSF Deed, gives you the link to the ATO website. It is free to get an ABN from the ATO. You also apply for a Tax File Number (TFN) from the ATO (as well).
Does my SMSF need an ABN
Currently, about half of the Self-Managed Super Fund deeds built on our website are for pension phase. These funds may have just passive investments. And there may only be investments via platforms. Nevertheless, all Australian compliant SMSF Deeds must have an ABN, at all times.
My company is a trustee of my SMSF. Does my company also need an ABN and TFN?
Most SMSF have a company as the trustee. If your company is only doing that one job – acting as trustee of the SMSF – then the company has neither an ABN or TFN. The trust needs the ABN and TFN, not the corporate trustee.
Must all members be trustee/directors? Really?
When I lecture superannuation to my students I tell them that:
1. all members must also be the only trustees; or
2. if there is a company as trustee then all the members must be the only directors
But that is not always the case.
What if a member loses capacity or has gone overseas? Or the person cannot be bothered running the SMSF?
Section 17A(1) requires all members to be trustees or directors. That draconian rule is tempered by section 17A(3)(b)(ii) SIS Act 1993. It gives discretion. The member can give someone an Enduring POA. Let’s say you have two members: a mum and dad. Both mum and dad can give a POA to their son, or their accountant or anyone they trust.
The ATO sets out the POAs rules in SMSFR 2010/2.
In SMSFR 2010/2 an example is given where two members are replaced by their friend who is not a member of the fund as trustee.
However, a POA does not work when you have a corporate trustee. And, these days, 94% of all SMSFs built on our website have a company as trustee.
SMSF member is frail or of unsound mind – enduring power of attorney
The governement wants the members of the SMSF to stay hands on. This is achieved by forcing all members to be the trustees of the SMSF. Or making all members directors of the corporate trustee of the SMSF.
But there are exemptions to this ‘control’ rule. One exemption is the member having a legally prepared POA by your lawyer is critical. (POAs built on governement websites often do not work. And there is no duty of care or responsibilty by the relevant state government.)
Therefore, if the member gets too frail or losses mental capacity then the SMSF remains compliant.
The POA helps where the member:
- loses mental capacity so that the member can no longer make decisions as trustee or director of the SMSF
- becomes reluctant to act as trustee or director for any reason including stress or fraility
- going overseas for a long period
Are you sure a ‘non’ member of the SMSF can still replace the trustee/member?
Well the ATO believes you can. In SMSFR 2010/2:
Andrew works for a large international group of companies. He and his wife, Jane, are trustees and members of their SMSF. From 1 February 2009 Andrew is transferred to an overseas company for an indefinite period of time. In accordance with the relevant State legislation, Andrew and his wife each execute an enduring power of attorney in favour of their friend and retired accountant, Trevor. In addition, Andrew and Jane both resign as trustees of their SMSF and appoint Trevor as the trustee. The appointment of Trevor as trustee is in accordance with the terms of the trust deed. Other than the fact that Andrew and Jane are not trustees of the SMSF, the superannuation fund satisfies the other requirements of the definition of an SMSF in subsection 17A(1).
Trevor is a legal personal representative of both of the members, Andrew and Jane, by virtue of holding an enduring power of attorney in respect of each of them. In addition, Trevor is now the trustee of the SMSF in place of both Andrew and Jane. Once appointed as trustee, Trevor is subject to civil and criminal penalties in the event that he breaches his duties. Provided that the enduring power of attorney remains valid during the period Trevor is the trustee and given that the other requirements of subparagraph 17A(3)(b)(ii) are satisfied, the superannuation fund continues to satisfy the definition of an SMSF in subsection 17A(1), notwithstanding that Andrew and Jane are no longer trustees.
Obviously, Trevor cannot take a fee as remuneration for acting as the Trustee. Taking a fee breaches section 17A(1) SIS Act 1993.
Can a person under 18 be a member of a SMSF?
A person cannot be a trustee of an SMSF. But with a Legal Consolidated SMSF deed can be a member if a parent or guardian acts as a trustee on their behalf.
Contribution restrictions also apply as to the child’s ability to make personal concessional contributions. A person under 18 can only make personal concessional contributions if they have income derived from work activities. If they do not, the only concessional contributions they can receive will be from a legitimate employer.
As a minor, they are entitled to receive a death benefit pension from the superannuation of either of their parents and be treated like a dependant for tax purposes on any superannuation lump sum death benefit.
What happens with the member in the SMSF turns 18?
Your child is a member of the SMSF? And they now turn 18 years of age?
If a person is in an SMSF, they now must be appointed as a trustee in their own right. This means that they take on all the legal responsibilities of being a trustee of an SMSF.
They can also make personal concessional contributions, irrespective of their work status, providing they have enough taxable income to claim the deduction.
They no longer automatically meet the tax definition of dependant for death benefit purposes and, as such, any death benefit they might receive cannot necessarily be in the form of a pension and lump-sum tax could be payable.
Does SMSF Deed mention AASB15 “Revenue from Contracts with Customers”?
As of 1 July 2021, non-listed companies are no longer allowed to prepare Special Purpose Financial Statements (SPFs). Instead they prepare the arduous General Purpose Financial Statements (GPFS). Small proprietary companies where 5% of their shareholders request GPFS to be prepared are included in the definition of companies that comply with this requirement.
This requirement also applies to SMSF, Trusts and Partnerships, but only where the founding Deed makes mention of AASB15 in its definition of income.
Happily, Legal Consolidated documents do not mention AASB15 in the definition of income.
Further, no Legal Consolidated documents require compliance with the arduous AASB15.
Investing into Cryptocurrency using SMSF
Legal Consolidated SMSF deeds are fully compliant with the new Cryptocurrency rules see here.
Snapshop of the Australian SMSF profession
The ATO released on 16 February 2022 its annual Self-Managed Super Funds: A statistical overview 2019-20 which is based on data from SMSF annual returns. It includes 34 tables of SMSF data and analysis with highlights listed below.
- As at 30 June 2021, there were almost 598,000 SMSFs (with 1.115m members) holding $822bn in total assets.
- In the 5 years to 2020-21, the number of SMSFs grew by an annual average of 1.7%.
- There were 25,000 SMSFs established in 2020-21 with average assets of $391,000 (median $260,000). Of the new SMSFs, 85% were established with a corporate trustee.
- Around 15,900 SMSFs were wound up in 2019-20.
- The average SMSF member balance at 30 June 2020 was $696,000 (median $415,000). The average balance for female members was $644,000 ($768,000 for males).
- SMSFs used the services of 4,600 SMSF auditors and 13,800 tax agents in 2019-20. The average SMSF audit fee was $660 (median fee $550).
- The average return on assets (ROA) for SMSFs was 0.7% for 2019-20 (with a median of -1.6%).
- Average total SMSF expenses for 2019-20 were $15,300 (median $8,200) representing a total expense ratio of 1.16%.
- In 2019-20, 55.1% of SMSFs were wholly in accumulation phase, 35.3% were wholly in retirement phase and the remaining 9.6% were in partial retirement phase. That is, 45% of SMSFs made retirement benefit payments to at least one member in 2019-20.
- A total of $596m in downsizer contributions were made by 2,344 SMSF members in 2019-20 (up from $439m). The average downsizer contribution was $254,000 (but the median was the $300,000 maximum).
- Auditor contravention reports (ACRs) were lodged for 13,900 SMSFs in 2020-21, reporting 40,200 contraventions (of which 45% were reported as rectified). The most commonly reported contraventions continued to be loans or financial assistance to members (20%), in-house assets (17%) and separation of assets (13%).
- SMSFs held 26.4% of their assets in listed shares, cash and term deposits (20.7%), unlisted trusts (11.9%), non-residential property (9.5%), LRBAs (6.8%), listed trusts (6.0%), other managed investments (5.6%), residential property (5.2%). 8% of SMSFs held all their investments in one asset class, while 40% held 50% or more of their assets in either cash and term deposits or listed shares.
- LRBAs – as at 30 June 2020, 11.3% of SMSFs reported limited recourse borrowing arrangements (LRBA) assets (down from 11.6% in 2018-19). LRBAs made up 6.8% of all SMSF assets. SMSF borrowings for LRBA purposes were $17.6bn. Of the $50.3bn of assets held under LRBAs, 96% ($48.2bn) is related to real property. This was split between residential ($26.2bn) and non-residential real property ($22bn).
- Cryptocurrency – 0.6% of SMSFs held a total of $218m of cryptocurrency (eg Bitcoin) at 30 June 2020 (up from $142m in 2018-19). While this $218m represents less than 0.1% of all SMSF assets, the average holding for those funds that have cryptocurrency was $67,726 (median $33,705).
- Real property – total SMSF investment in real property was $157.2bn in 2019-20. Overall SMSF investment in residential real property, both directly and through LRBAs, was $64.4bn in 2019-20.
Superannuation guarantee rate
The superannuation guarantee rates are as per the table below.
Employers pay the relevant minimum superannuation rate as per the table.
This is on an employee’s ordinary time earnings in each quarter. The amount contributed cannot include any employee salary sacrifice contributions. And it is based on an employee’s ordinary time earnings before any salary sacrifice superannuation amounts are deducted.
The superannuation guarantee rate is legislated:
To update your SMSF Deed see here.