Self managed superannuation funds (SMSFs)
Duties of trustees

Trustees of self managed superannuation funds (SMSFs) are ultimately responsible for the running of their fund. It is imperative that each trustee understands the duties, responsibilities and obligations of being a trustee. Rules exist to ensure the protection of the assets in the fund until they are needed at retirement. There are significant penalties imposed on trustees who fail to perform their duties.

Key responsibilities

A trustee of an SMSF must act in accordance with:

• the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA);
• the clauses of the superannuation fund trust deed; and
• other general rules, for example those imposed under tax law and trust law.

The SISA covenants

SISA contains covenants or rules that impose certain requirements on trustees and are deemed to be included in the trust deed of every regulated fund. These covenants reflect the duties imposed on a trustee under trust law in general. They require trustees to:

• act honestly in all matters;
• exercise the same degree of care, skill and diligence as an ordinary prudent person;
• act in the best interest of the fund members;
• keep the assets of the fund separate from other assets (e.g. the trustee’s personal assets);
• retain control over the fund;
• develop and implement an investment strategy;
• allow members access to certain information.

Delegating certain responsibilities to a service provider

Whilst trustees are not prevented from engaging or authorising other persons to do certain acts or things on their behalf (e.g. engaging the services of an investment adviser), they are bound to retain control over the fund. Ultimate responsibility and accountability for running the fund in a prudent manner lies with the trustees.

Keeping superannuation money and other assets separate

Trustees of SMSFs must keep money and other assets of the superannuation fund separate from their own personal assets. Similarly, the assets of the superannuation fund must also be kept separate from those belonging to a business (e.g. a business run by two partners who decide to set up an SMSF).

Money belonging to the fund must not, under any circumstance, be used for personal or business purposes. This money is for retirement purposes and generally cannot be accessed until retirement. The fund’s assets must not be viewed as a form of credit or emergency reserve when faced with a sudden need.

Sole Purpose Test

It is the trustee’s responsibility to ensure that an SMSF is operated for the sole purpose of providing retirement benefits for members or member’s dependants. Please refer to the information titled: Self managed superannuation funds—sole purpose test (this document can be found online at www.ato.gov.au), for a more detailed description of this area.

Managing Investments

The Tax Office does not provide financial advice on the suitability of investments made by trustees. In making investment decisions the trustees must act in accordance with the fund’s trust deed, investment strategy and the provisions of SISA. Some of the more important issues to consider when investing a SMSF’s assets include the formulation of an appropriate investment strategy and investment restrictions:

Investment Strategy

Under SISA all superannuation funds are required to have an investment strategy. The trustees are responsible for formulating an appropriate investment strategy and it is strongly recommended that the strategy be in writing. All investments must be made in accordance with the investment strategy of the fund.

Investment Restrictions

SISA sets out various rules and restrictions on investments. These include:

• lending to members and their relatives
• acquiring assets from ‘related parties’ of the fund
• borrowing by superannuation funds
• in-house assets
• making and maintaining investments on an ‘arms length’ basis.

Please refer to the information titled:
Self managed superannuation funds—investment strategy and investment restrictions (this document can be found online at www.ato.gov.au), for a more detailed description of this area and a full definition of ‘related parties’.

Administrative Obligations

Trustees are also responsible for the fund’s ‘housekeeping’ including:

• complying with record keeping requirements (such as minutes and financial records);
• preparing and lodging annual returns with the Tax Office; and
• getting the accounts Audited annually.

Please refer to the information titled:
Self managed superannuation funds—administrative obligations (this document can be found online at www.ato.gov.au), for a more detailed description of this area.

What else do trustees need to know?

If a trustee fails to act in accordance with the rules and obligations imposed on them, the trustee may be sued by affected fund members and/or may jeopardise a fund's eligibility for tax concessions. In addition, SISA imposes substantial penalties on trustees who have failed to carry out their duties.

The above does not provide an exhaustive coverage of responsibilities of trustees. Many more obligations are imposed on trustees under different laws including numerous administrative requirements. Trustees need to be familiar with them and when in doubt about these requirements, professional advice should be sought.

Need more information?

For further information on this topic:

• visit our website at:   www.ato.gov.au/super
• phone our information line on: 13 10 20
• obtain a fax by phoning: 13 28 60, or
• write to:

Australian Taxation Office
Superannuation Business Line
PO Box 277
WTC VIC 8005

If you do not speak English well and want to talk to a Tax Officer, phone the Translating and Interpreting Service on: 13 14 50 for help with your call.

People with a hearing or speech impairment with access to appropriate teletypewriter (TTY) or modem equipment, phone:
13 36 77. If you do not have access to TTY or modem equipment, phone the Speech to Speech Relay Service on: 1300 555 727.


Copyright © Commonwealth of Australia 2004
reproduced by permission

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