- Why do I need a trustee of the Super SMSF
- Who can’t be a trustee
- Who can be a trustee
- Why use a Company to be a trustee
- What duties must I (trustee) do ?
- Residency Tests
Why do I need a trustee of the Super SMSF
To qualify for the favorable tax treatment of your investments and savings in a SMSF you must satisfy conditions, one condition is that your Super SMSF must have a trustee. You can choose one of two options A or B, please see page 3 of How to Setup a Super SMSF Instruction Form
Who can’t be a trustee
Is under 18 years of age (legal age) or some other legal disability
- A foreign company.
- A company and a individual as joint trustees
- Civil penalty under the SIS Act
- A company with a director les than 18 years of age
- Only 1 individual
- Convicted of being dishonest
- A undischarged bankrupt
- Company has a receiver/manager appointed
Who can be a trustee
Generally speaking trustees are either individuals or a company as follows:
Individuals:
- A minimum of two individuals must act as the trustee
- Each member of the Super Fund must also be a trustee
- The individuals/members are relatives
- The members and trustees do not need to be relatives however if not a relative that member cannot be an employee of the other member a similar effect applies where the employer is a company Ask Audit of SMSF for more details if this will apply to you.
- The Legal Personal Representative (“LPR”) of a member who has deceased.
Company:
- Each director of the company is a member of the fund.
- Each member of the fund is a director of the company
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Why use a Company to be a trustee
The benefit of a company over the members being the trustee is:
- Protection – The trustee is liable for the transactions of the super fund. If the Superfund Trustee is sued then the trustees persona assets may be at risk. However this risk is minmised since the members (you) of the fund are the trustees (you). So this benefit is minimized.
- Administration efficiency – is easier and cheaper when a member is admitted or leaves the fund (eg divorce, death or because of planning opportnities)
What duties must I (trustee) do ?
These duties are normally prepared and handled by your Accountant or Advisor so this becomes painless, the duties include but are not limited to: Lodge Tax Returns, Ensure your Super is maintained entirely for retirement, follow the rules of your super fund trust deed, to prepare and follow your super investment strategy, not to lend money to relatives, not to purchase assets from relatives (there are some exceptions), to name a few, read this website or contact us or your adviser to understand more.
Residency Test
To be a complying fund in relation to an income year, an SMSF must be a resident regulated fund, which means that it must be an Australian superannuation fund for tax purposes at all times during the income year when it was in existence.
In order for the fund to be a resident fund for an income year, all three tests below must be satisfied at the same time during that year. If a SMSF fails to satisfy any one of the tests below in an income year, the SMSF will not be an Australian superannuation Fund, even if the other tests are met.
Test 1:Fund established in Australia, or any asset of the fund is situated in Australia
This test is contained in s295-95(2)(a) of the ITAA 1997 and will be satisfied if either:
- the fund was established in Australia; or
- at a particular time, any asset of the fund is situated in Australia.
Test 2:Central management and control of the fund is situated in Australia (CM&C)
The second test is the CM&C test which is contained in S.295-95(2)(b) and requires that, at a particular time, the CM&C of the fund is ordinarily in Australia. CM&C essentially means that ‘high level and strategic decisions are made and high level duties and activities are performed in Australia’. Examples of high level decisions are:
- formulating, reviewing, updating or varying the fund’s investment strategy;
- Monitoring and reviewing the performance of the fund’s investments;
- determining how the assets of the fund are to be used to finance members benefits.
The daily administrative operations of a fund are not regarded as being part of the strategic or high level decision making processes. Examples of the administrative duties are:
- acceptance of contributions
- investment of the fund’s assets
- the preservation, payment and portability of benefits for members
Generally, the location of the CM&C of a fund is where the high level and strategic decisions are made and high level duties and activities are performed, regardless of where the persons exercising the CM&C of the fund reside. (paragraph 27 of TR 2008/9).
Whether the CM&C of a fund is ‘ordinarily’ in Australia at a particular time depends on the facts in each case, and involves determining if, in the ordinary course of events, the CM&C of the fund is regularly, usually or customarily exercised in Australia.
The temporary exercise of the CM&C ofa fund from outside Australia does not mean the CM&C is not ‘ordinarily’ in Australia. A temporary absence for 2 years or less will still allow the CM&C of a fund to be ‘ordinarily’ in Australia, however, a person’s intention at the time is relevant. The distinction between temporary and non-temporary absence is critical.
Equal number of trustees/directors.
If an equal number of individual trustees or directors of a corporate trustee are located in Australia and overseas (ie two out of four trustees are in Australia and two are overseas) and each of those trustees or directors substantially and actively participate in the exercise of the CM&C of the fund from those locations, then the CM&C of the fund will be taken to ‘ordinarily’ be in Australia
Test 3: Active members test
This test is contained in s295-95(2)(c) and is satisfied if, at the relevant time:
- the fund has no ‘active member’; or
- the fund have active member and
- at least 50% of the total market value of the fund’s asset are held by active members who are Australian resident (s295-95(2)(c)(i)); or
- at least 50% of the sum of the members’ balance were held by active members who are Australian resident(s295-95(2)(c)(ii)).
Active member: Under s295-95(3) ITAA 1997, a member of a fund is an active member at a particular time if the member is a contributor to the fund or is an individual whose behalf contributions have been made.
Consequences for not satisfying the residency requirement:
- Market value of the fund’s assets[ii] is taxed at the highest marginal rate (i.e. 45%)
- Ineligible for certain tax concessions (i.e. income tax deductions for death or disability premiums, potential anti detriment payments and tax exemption on income derived from segregated pension assets)
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[i] Sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members.
[ii]Market value of the fund’s assets less any pre-July 2007 undeducted contributions and post-June2007 untaxed contributions
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