SMSF Legal Framework
The SMSF legal framework doesn’t just include the SIS Act plus Regulations. There is a lot more to it.
SMSF Legal Framework
SMSFs don’t live in a vacuum. If there was just one set of rules, being an SMSF trustee wouldn’t be so hard. But there is a lot more to it.
SIS Act and Regulations
It starts with the SIS Act and SIS Regulations. Or in full the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994. They do the heavy lifting for SMSFs.
They tell you when and how you meet a condition of release. How to calculate your minimum pension payments. How to run your SMSF.
But an SMSF is also a trust. And so is subject to trust law like any other trust.
Just like a ‘normal’ trust your SMSF is not a separate legal entity, but only a fiduciary relationship – governed by a deed and law – between the trustee and at least one named beneficiary (member) in relation to clearly defined trust property.
Like any other trust, your SMSF can have one or more individual or corporate trustees.
And like any other trustee you are subject to trustee duties. So you must take reasonable care, adhere to the trust deed and give account. And you have a duty not to fetter your discretion, not to delegate and not to profit.
Different to a ‘Normal’ Trust
But an SMSF is also quite different to a ‘normal’ trust.
A SMSF pays income tax. A ‘normal’ trust doesn’t. Its beneficiaries and / or trustees do.
A SMSF can’t distribute before it meets a condition of release. In a ‘normal’ trust the trustee must distribute all income or otherwise be assessed at the top marginal rate.
Once in pension mode, a SMSF has to distribute a certain amount, so-called minimum pension payments, which might be more or less than its actual income. In a ‘normal’ trust, distributions are linked to income, nothing else.
In a SMSF must adhere to certain investment rules and can’t invest in whatever and however you like. In a ‘normal’ trust you can.
In a SMSF you need a written down strategy. In a ‘normal’ trust you don’t.
A SMSF has (concessional and non-concessional) contribution caps. A ‘normal’ trust doesn’t.
And so on. Do you get the gist?
Your SMSF has to pay tax on its assessable income but to what extent is governed by the Income Tax Assessment Acts in conjunction with the SIS Act.
If your SMSF has a corporate trustee, this corporate trustee will need to follow its constitution (or replaceable rules), comply with the Corporations Act 2001 and deal with ASIC – Australian Securities and Investments Commission.
If your SMSF owns property, then you also need to comply with Australian property law. Most of this is state and territory based. So each state and territory has its own land title register as well as legislation regarding property and land title.
If your SMSF rents out property, then there is the Competition and Consumer Act 2010 but the rest is state-based again, from your state or territory’s Residential Tenancy Acts to your state or territory’s Fair Trading Acts.
And if you go through a marriage or relationship breakdown, then family law will have its fair share to say as well. Your SMSF will probably go into the joint asset pool and be split in one way or another.
So this is why being an SMSF trustee is not an easy undertaking. There are a lot of moving parts.
Does this make sense so far? If you have a question, please email or call us. There might be a simple answer to your question.
Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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Last Updated on 14 March 2020
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We look after the tax and accounting of your business, wealth and SMSF. We are Chartered Accountants and Registered Tax Agents in Australia and IRS-registered CPAs in the US.