Self-managed superannuation funds (SMSFs) and are one of the biggest investment trends in the Australian marketplace over the last 20 years. And in many ways, they are perfectly suited many folk. However, beware. They must be administered correctly and by qualified persons, failure to comply may have devastating ramifications.
In 1994, about 80,000 SMSFs were operating, holding about $11 billion in assets. There are now almost 600,000 SMSFs, with 1.1 million members, controlling about $790 billion in assets, the second-largest single chunk of the $3.1 trillion superannuation pool (behind only industry funds, which hold $858 billion). Over the decades, hundreds of thousands of Australian investors have voted with their feet, for direct control of their retirement income strategy.
Most importantly, are you eligible to be a trustee or director of your Self-Managed Super Fund?
All members of your fund must be individual trustees or directors of the corporate trustee, so make sure you’re eligible. Anyone older than 18 years can be a trustee or director of a super fund so long as they’re not under a legal disability (such as mental incapacity) or a disqualified person.
To be sure you are not a disqualified person you need to be able to answer NO to all of the following questions.
Question 1.
Have you ever been convicted of a dishonest offence, in any state, territory or a foreign country?
Offences of a dishonest conduct are things such as fraud, theft, illegal activity or dealings. These convictions are for offences that occurred at any time, including convictions that have been ‘spent’ and those that the court has not recorded, due to age or first offender.
Question 2.
Have you ever been issued with a civil penalty order?
Civil penalty orders are imposed when an individual contravenes a civil penalty provision, this can be an order to pay a fine or serve jail time.
Question 3.
Are you currently bankrupt or insolvent under administration?
You cannot be a trustee of an SMSF while you are an undischarged bankrupt, you cannot remain a trustee if you become bankrupt or insolvent after you are appointed.
Question 4.
Have you been previously disqualified by the ATO or APRA?
The commissioner of taxation as regulator can disqualify a trustee, this disqualification is permanent and is not just specific to the SMSF you were a trustee of at the time.
The Federal Court can make an order to disqualify a trustee of an APRA fund. This is permanent and this disqualification does not allow you to operate an SMSF.
Whether you’re a trustee or director of a corporate trustee, you are responsible for running the fund and making decisions that affect the retirement interests of each fund member, including yourself.
A common mistake is thinking that you can establish a SMSF and simply gain access to your money because you are a trustee. Think again ! This is actually a breach of the superannuation act and heavy penalties are at stake.
As trustee, you must ensure that any member has met a condition of release before you release any funds, and check that the governing rules of your fund allow it. It’s possible that a benefit may be payable under the super laws but not under the rules of your self-managed super fund (SMSF). This is an important condition and should be discussed with your adviser when you are establishing the fund.
If you are thinking about setting up a fund, DON’T go cheap ! It may be the most expensive thing you do: And legal advice is generally not as good as proper experienced financial advice from someone who also knows the law but importantly has life experience in this area.
Access To Your Money
To access your cash preserved benefits or restricted non-preserved benefits, you, as a member, must satisfy one of the conditions of release. Unrestricted non-preserved benefits may be cashed at any time.
Some conditions of release restrict the form of the benefit (for example, lump sum or pension) or the amount of benefit that can be paid. These are known as ‘cashing restrictions’.
The most common conditions of release for paying benefits are that the member:
- has reached their preservation age and retires
- has reached their preservation age and begins a transition-to-retirement income stream
- ceases an employment arrangement on or after the age of 60
- is 65 years old (even if they haven’t retired)
- has died.
In special circumstances, some of your super can be released before you have reached your preservation age. These are:
- terminating gainful employment
- permanent incapacity
- temporary incapacity
- severe financial hardship
- compassionate grounds
- terminal medical condition
- First home super saver scheme
- COVID-19 early release of super
All trustees and directors are equally responsible for managing the fund and making decisions. You are responsible for decisions made by other trustees, even if you’re not actively involved in making the decision.
Often a husband and wife set up a fund where one person might have greater knowledge and understanding, and that person tends to take the lead in the decision making process. This can be a two edged sword for the disadvantaged partner who remains equally responsible for all the decisions even if they didn’t participate or understand them.
Be careful if you are that person !
You can appoint other people to help you or provide services to your fund (for example, an accountant, administrator, tax agent or financial planner). However, the ultimate responsibility and accountability for the SMSFs actions lie with you, as trustee or director.
As an individual trustee or director of a corporate trustee, you may be personally liable to pay an administrative penalty if certain laws relating to SMSFs are not followed and other members of the fund can take action against you if you don’t follow the terms of the trust deed. Think divorce !!
Any fund member who suffers loss or damage because of a breach of any trustee duties may sue any person involved in the breach.
Article Supplied by Scott Heathwood of https://www.wealthyandwise.com.au
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