Roles and responsibilities of SMSF trustee

There are some responsibilities and obligations that a trustee must follow to run an SMSF. Some of the acts to which a trustee should adhere to include:

  • The Superannuation Industry (Supervision) Regulations 1994
  • The Superannuation Industry (Supervision) Act 1993
  • The Income Tax Assessment Act 1997 The Corporations Act 2001
  • The Tax Administration Act 1953

While doing so, maintaining the below-described requirements are compulsory while running an SMSF.

Trust deed

A trustee must be aware of the changes to the legislation relevant to the operation of the fund. She also needs to keep the Trust Deed of the SMSF up to date and ensure that this deed follows the rules laid out in the legislation.

The Trust Deed outlines the governing rules of your SMSF and contains information including:

  • Name of the fund and the trustee(s)
  • Rules governing the contributions
  • Rules governing the benefit payments.

Trustee responsibilities

A trustee must act honestly, exercise skill, care and diligence while managing the fund. She must make sure to work in the best interests of all the members of the fund. Moreover, she must ensure that a member accesses her super benefits only when that member meets a legitimate condition of release.

A trustee should always act as per the best interests of all members of the SMSF. She must keep herself up to date with issues relating to the fund and the superannuation industry.

A trustee of the fund makes the financial decisions concerning the fund. A trustee should consider everyone’s circumstances and come up with decisions that are most appropriate to all members of the fund.

All the important decisions and changes relating to the fund need to be documented in the minutes of the meetings.

Trustees must ensure that the benefits of a member are accessed only when a member has satisfied a condition of release. This condition of release usually will be (a) on retirement after a certain age, or (b) with the payment of a benefit to dependents upon the death of the member. There are other limited circumstances in which some or all of the benefits may be accessed, including on compassionate grounds, hardship or a diagnosis of a terminal illness. Contact your accountant or SMSF professional before obtaining benefits to ensure that there is no accidental breach of the law with an illegal early release.

Trustee declarations

The Trustee Declaration states that a trustee must:

  • Appoint an ASIC-approved SMSF auditor to audit the SMSF
  • Protect the assets of the SMSF
  • Avoid any contract or work that will prevent her from performing duties as a trustee of the fund
  • Make sure to lodge the annual return of the SMSF with the ATO before the deadline.

A trustee must follow the investment guidelines and make sure that she does not break relevant rules, including:

  • Providing financial assistance to members or family members, such as giving a loan to pay the school fee.
  • Except for some special circumstances, avoid purchasing assets from members or related parties.
  • Except for some limited circumstances, don’t borrow money.
  • In-house assets (loan or investment in a related party of the fund) should not exceed more than 5% of investments of the SMSF.
  • Don’t enter into investments or selling fund assets on a non-arm’s length basis.

The sole purpose test

A trustee must make sure that the sole purpose test ensures that the fund is maintained for the core purposes of (a) providing for the provision of benefits in retirement, and (b) providing for the provision of death and/or disability benefits.

Trustees must consider the ongoing appropriateness of the fund as a retirement savings vehicle. They must not consider the fund as a source for any immediate monetary or non-monetary benefit to members.

Investment strategy

By law, a trustee must prepare, implement and regularly review an investment strategy considering all situations of the fund, which including:

  • Aware of the risks associated with the fund’s investments and the likely return from those investments, by considering the objectives and expected cash flow requirements of the fund.
  • Maintain investment diversification and the liquidity of the fund’s investments.
  • Understand the fund’s expected cash flow requirements in discharging its existing and prospective liabilities (which includes paying benefits to members).
  • Make sure that the fund holds insurance to cover members of the fund.

Refer to our insight 'Developing an SMSF investment strategy' for more information.

Separate legal entity

There should be a clear division between individual assets and SMSF assets. The SMSF entity must be transparent, and the SMSF must keep all the records of the assets in the name of the fund.

Fund assets

A trustee must take appropriate action to protect the fund's assets and investments. The decisions of a trustee must be in line with the investment strategy of the SMSF and in the best interests of all members of the fund.

Some assets may require adequate insurance to protect their value. For example:

  • Real Estate — insurance for damage, theft or loss of rent.
  • Artwork or Collectables — insurance for damage or theft.

There are also various contingency plans that a trustee can put in place to ensure the protection assets and retirement funds. For example:

  • Custody of titles — the trustee is responsible for the safekeeping of Title Deeds. Consider keeping a second copy in an alternative location.
  • Minutes of Decisions — trustees are required to keep minutes of decisions made by them for the fund. This practice can provide some evidence of ownership if needed.
  • Storage — certain assets such as artwork and collectables may need to be stored in a suitable facility to protect them from damage or theft.

Penalties for non-compliance

A trustee must comply with the superannuation and taxation laws for all contributions received by the fund and benefits paid to members. If a trustee does not comply with the legislation, the Commissioner may take the following actions:

  • Impose administrative penalties on the trustees.
  • ATO will issue a written direction to rectify any contraventions or undertake a course of education.
  • Enter into agreements to rectify any contraventions of the legislation.
  • Disqualify a trustee or director of a corporate trustee of the fund to act in the future.
  • Remove the fund's complying status, which may result in significant adverse tax consequences for the fund. This action can lead the trustee to fines or imprisonment under the law.
  • Penalise per breach depending on the seriousness of the violation. Using the assets of the SMSF to pay these administrative penalties is strictly forbidden and would be considered a severe breach.

Reporting requirements

Trustees of the fund must comply to the reporting requirements including

  • Financial annual statement of the SMSF.
  • Ensure that an approved auditor is appointed at least 45 days before the due date for lodgement of the fund, to audit the fund for each income year, and provide that auditor with documents as requested.
  • Lodge the fund's annual return, completed in its entirety, by the due date.

Record keeping and Administration

Trustees of the fund must retain documentation including

  • The minutes of all trustee meetings.
  • Records of any change of trustees.
  • Records of any change of directors of the corporate trustee.
  • Consent of each trustee for their appointment as (a) a trustee of the fund, or (b) a director of the corporate trustee.
  • All trustee declarations and copies of all reports must be available to members.
  • All annual returns lodged.
  • Financial statements that accurately record and explain the transactions and financial position of the fund.

Access to fund information

All members of the SMSF should have access to the fund documents such as the financial situation of the fund, the investments of the fund, and the benefit entitlements of the members.

It is the responsibility of the trustee that proper records (such as financial statements and tax returns) are maintained and available to all members of the fund on request. These records may include members' statements, minutes, member application forms and the Trust Deed of the fund.