7 Key Things to Understand SMSF Trustee’s Role for Retirement Success

Are you a Self Managed Super Fund (SMSF) trustee seeking further insight on financial decision making and compliance, or are you curious about what is involved in managing your own superannuation?  Managing a SMSF carries responsibilities that require careful planning, knowledge, and diligence. The role of an SMSF trustee is central to this process, governing every aspect of the fund’s operation and ensuring compliance with relevant laws and regulations. 

The SMSF trustee’s role revolves around safeguarding the interests of the fund’s members. This involves acting honestly and diligently, ensuring that every financial decision aligns with the best interests all members of the fund. The trustee bears the responsibility of not only preserving the value of the fund’s assets but also growing them strategically to secure a comfortable retirement for all members. This blog post will delve into the essential responsibilities of an SMSF trustee, covering the Trustee’s Role, Legal Obligations, Investment Strategies, Record Keeping, and Annual Reporting Obligations.  

Choosing Individual Trustee Vs. Corporate Trustee 

Starting your SMSF adventure involves appointing either individual trustees or directors according to your fund’s trust Deed. 

SMSFs can have either Individual Trustees or a Corporate Trustee, depending on the preferences and needs of the members.  The comprehensive guide: Choosing Individual vs. Corporate Trustee, details the pros and cons of each.  SMSFs appoint members also as either individual trustees or directors of a corporate trustee under the fund’s trust Deed.  All individual trustees and directors must within 21 days, consent in writing to their appointment and sign the Trustee Declaration stating they understand their responsibilities.  The declaration is not lodged with a regulatory body but must be retained in the SMSF records (including 10 years after the SMSF wind up) to be provided with the annual audit.  

Directors of a corporate trustee will need a unique director identification number (director ID). This is applied on Australian Business Registry Services (ABRS) online.   

An SMSF can have from one to six members, all of whom must be trustees, or in the case of a corporate trustee, all members must be directors. When a new member is admitted to the fund, they also need to be appointed an individual trustee or director of the corporate trustee.   

Am I Eligible to Become a Trustee or Director? 

Anyone 18 years old or over can be an individual trustee or director of a corporate trustee so long as they’re not a disqualified person or under a legal disability (eg mental incapacity).  However, a parent, guardian or legal personal representative of a member under 18 can be the trustee or director of a corporate trustee on their behalf.  

The following events will disqualify a person from being a trustee or director:  

• convicted of a dishonest offence, in any state, territory or a foreign country.  It is possible to apply for a waiver of disqualified status if the penalty imposed was not either imprisonment for two years or a fine of more than 120 penalty points.  
• issued with a civil penalty order.  
• currently bankrupt or insolvent under administration. 
• previously disqualified by the ATO or APRA.  

 What is an SMSF Trustee’s Role? 

Being a trustee of a SMSF means you are responsible for managing the fund’s assets on behalf of the members and ensuring it meets the obligations set out in the Superannuation Industry (Supervision) Act 1993 (SISA). Trustees must:  

• Act honestly in all matters.  
• Exercise the same care, skill, and diligence as an ordinary prudent person.  
• Act in the best interest of all fund members.  
• Keep the assets and money of the SMSF separate from personal and business assets.  
• Maintain the fund to provide benefits for the members.  
• ensure that the SMSF complies with the laws that apply to it.  

What Are the Legal Obligations?

Trustees must be familiar with and comply with the SISA, the main law governing SMSFs. Non-compliance can lead to significant penalties (as an individual trustee or a director of a corporate trustee, you may be personally liable) and the fund losing its tax concessions. It is important to stay up to date with legislative changes and therefore it is recommended Professional Assistance be obtained from an accountant or financial planner.  

Legal obligations include:  

• Compliance with the Sole Purpose Test, ensuring the fund is maintained solely for retirement benefits.  
• Following the terms of the fund’s Deed.  
• Ensuring the fund meets all the requirements of the Australian Taxation Office, the regulator of SMSF’s.  

Members of the fund can take action against trustees if they you don’t follow the terms of the trust Deed. Any fund member who suffers loss or damage because of a breach of any SMSF trustee duties may sue any person involved in the breach. 

Investment Strategies

Investment control is one of The Benefits of SMSFs, but it comes with obligations. Trustees must create and implement an investment strategy that aligns with members’ needs and risk profiles. This includes considering diversification, liquidity, insurance for members, and the fund’s ability to discharge its liabilities, as detailed in the blog post Investment Strategies for SMSFs.  

Record Keeping

Proper record keeping is fundamental to the management of an SMSF. Trustees must:  

• Maintain accurate financial records, including obtaining supporting documentation for all transactions, recording all transactions and financial positions.  
• Keep minutes of meetings and resolutions for at least ten years.  
• Retain safe custody of important records such as the Deed, Appointment of Trustee/s and Trustee/s Declaration.  
• Obtaining valuation of assets annually 

Good record keeping not only aids in meeting SMSF Compliance & Regulations, but it also is the foundation for good stewardship of investment management.   

Annual Report Obligations

Annual reporting is essential for transparency and compliance with regulatory requirements. Reports can be prepared at any interval the trustee desires and regular preparation of reports on financial performance can aid in effectively managing investments.    

The annual reports are prepared for the financial year ending 30 June and capture all the financial information, investment performance, movement in member’s balances and a calculation of income tax for the financial year.  SMSF trustee must:  

• Prepare accurate financial statements, including a statement of financial position and an operating statement.  
• Arrange an independent audit by an approved SMSF auditor, as per SMSF Auditing Requirements.  
• Lodge the SMSF Annual Return with the Australian Taxation Office and manage and plan for ongoing tax obligations.  
• Provide members with an annual statement, detailing their benefits and contributions.  

This process is generally managed through Professional Assistance from an experience SMSF accountant.  Note, not all accountants specialise in SMSF.  

Conclusion

An SMSF offers a personalised approach to retirement planning, with extensive control and flexibility. However, it also demands time, skill, and rigorous adherence to regulations to avoid the attention of the Australian Taxation Office and imposition of penalties.  

As a CPA accounting firm in Caloundra QLD Australia, Wardle Partners Accountants & Advisors have been specialising in SMSF set-ups, administration, processing, compliance advice, accounting, taxation, and wind-ups for over 40 years. Please note that the above information is general in nature. Wardle Partners Accountants and Advisors does not hold an Australian Financial Services Licence (AFSL) and our company nor any of our employees or directors are not authorised representatives of an AFSL. We do not provide financial product advice or recommend any financial products either expressly or implied. 

By providing this introduction to the SMSF trustee’s role, we hope to provide valuable insights for those considering this path for retirement planning. The linkages to other blogs within this series offer a more in-depth understanding of related topics, forming a comprehensive guide for SMSF management. If you have any questions or need professional assistance, feel free to contact us or schedule a free consultation with one of our SMSF experts.  

Did You Know?

According to the Australian Taxation Office, as at 30 June 2022, there were over 603,000 SMSFs in Australia, an increase of 4% on the previous year, highlighting the popularity and significance of this do-it-yourself retirement planning tool.