When creating a life plan, the last thing we expect is to fail. That is why when thinking about establishing an SMSF, understanding how it works is what will ensure you get the most out of this retirement super fund. Getting best out of your SMSF and dealing with changes and challenges is something you will have to learn to deal with. Thus the decision to set up an SMSF should not be taken lightly. As there are many really good reasons why you should, there are also number of issues to consider, assignments to perform and responsibilities to take as an SMSF trustee. Read on to understand better the unique and key rules involved in running of an SMSF.
An SMSF is a retirement fund that:
- Consists of four members or less;
- Each member of the fund is also a trustee (administrator);
- Not a single member of the fund can work for any other fund members, unless they are relatives
Key definitions:
- A member – A person how will receive pension from the fund and is also entitled to contribute to the fund.
- A relative – Parent, spouse, child, grandparent and any other relative, including spouse or former spouse of any of these and even spouses who are not legally married but live together on real domestic basis.
Explanation Of A Trust Deed
A trust deed is a legal document designed to govern the SMSF and sets out the rules of the fund which must comply with the regulations of the Superannuation Industry Supervision Act (SIS Act). Some of the rules are:
- To always be honest;
- To always act in the best interests of all trustees;
- To keep fund assets separate from personal ones;
- To create effective investment strategies;
- To ensure proper performance of the SMSF;
- To be in charge of SMSF responsibilities;
- To ensure the fund is always in compliance with ATO rules and regulations.
Explanation Of The Sole Purpose Test Superannuation
This test is required to ensure retirement benefits are provided to fund members. Sole purpose test superannuation also allows the fund to be maintained for other secondary purposes such as:
- To provide benefits for each trustee after their retirement;
- To provide benefits for each trustee after reaching the determined age (65);
- To provide benefits to the legal representative and/or dependents in case a trustee dies.
Your SMSF must be an Australian super fund in order to comply with the regulations. It has to be established in Australia and members must also be Australia’s residents. An SMSF must be in compliance with the ATO laws. You will be penalized for neglecting any of the above mentioned rules.
