What laws do SMSFs need to adhere to?

As a trustee of a self-managed super fund (SMSF) there are responsibilities and rules you must follow. At the most fundamental level, you need to make sure your SMSF is functioning under the relevant laws.

As a type of superannuation fund, trustees need to understand the overriding legislation for SMSFs is the Superannuation Industry (Supervision) Act 1993 – also known as the SIS Act.

SMSFs also pay tax as there are many sections of the Income Tax Assessment Act 1997 (ITAA ’97) that apply only to super funds.

As SMSFs are a form of trust the general law of trusts will apply and if your fund has a corporate trustee structure, then the Corporations Act 2001 also needs to be considered.

These Acts can be very complex and detailed – the ITAA ‘97 has nearly 1000 sections – but trustees should be familiar with the law, so they don’t contravene their requirements as SMSF trustees.

SIS Act

The SIS Act defines an SMSF and who can be a member. It explains how an SMSF needs to operate and how it needs to be administered.

But perhaps the most important part of the Act for trustees to familiarise themselves with and keep in mind is the sole purpose test.

The sole purpose test requires each trustee of a regulated super fund to ensure that the fund is maintained solely for one or more of five core purposes. Those core purposes are:

• The provision of benefits for each member of the fund on or after the member's retirement
• The provision of benefits for each member of the fund on or after the member's attainment of retirement age
• The provision of benefits for each member of the fund on or after whichever is the earlier of the member’s retirement or the member reaching retirement age
• The provision of benefits in respect of each member of the fund on or after the member's death, if the death occurred before the member retired and the benefits are provided to the member’s legal personal representative, to any or all of the member's dependents, or to both
• The provision of benefits with respect to each member of the fund on or after the member's death, if the death occurred before the member reached retirement age and the benefits are provided to the member’s legal personal representative, to any or all of the member's dependents, or to both.

The Act also details ancillary purposes for which super funds can be maintained but these are in addition to one or more of the core purposes listed above.

(The section of the Act that defines the sole purpose test can be found here.)

The SIS Act also stipulates the number of penalty units SMSF trustees may incur for breaches. Some fines are imposed by the Australian Taxation Office (ATO) for breaches of the legislation and are currently $330 per penalty unit. Civil and criminal penalties can also be imposed by the courts for contraventions of the SIS Act. The more severe contraventions involve in-house assets and lending to members and relatives and can evoke penalties of up to 60 penalty units or $19,800.

Governing rules for SMSFs, such as what needs to be included in an investment strategy, along with administration obligations, such as audit requirements and annual tax returns, are also included in the SIS Act.

The annual tax return for an SMSF is the fund’s tax return combined with an annual member contributions statement as required under the Taxation Administration Act 1953.

Income Tax Assessment Act 1997