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HOME SMSF SMSF RESTRICTIONS SMSF RISKS & COSTS SMSF BENEFITS SMSF TYPES SMSF DEFINITIONS TRUST DEED ANNUAL ADMIN SMSF AUDIT INVESTMENT PLAN PENSION CALCULATOR CONTACT |
Self Managed Superannuation Fund Definitions Self Managed Superannuation Fund (SMSF), also called Do It Yourself (DIY) Super Fund, is a superannuation fund that is regulated by the Australian Taxation Office (ATO) and all members of the fund (maximum of 4) are the trustees of the fund. The exception to this rule is, if a member is a minor, or a person is under legal disability. In such cases regulatory provisions state, that a member of a SMSF cannot be the trustee of the fund, and needs to be represented by some other trustee of the fund. If a SMSF complies with the SISA (Superannuation Industry (Supervision) Act 1993) standards, the fund is a complying superannuation fund and is taxed concessionally at a maximum rate of 15%. To stay complying, the single most important requrirment of the fund is that the fund needs to meet the sole purpose test, i.e. providing benefits to fund's members on or after retirement, paying benefits to members on the member's death, or benefits being passed on to a members' dependants or legal representatives. To stay a complying superannuation fund, all trustees/members must be familiar with SISA standards and understand their role in running the fund. The following is a short list of some more important definitions for trustees: Trustee - is a person, or a legal entity, responsible for ensuring the fund is properly managed as set out under the Superannuation Industry Supervision Act 1993 and in accordance with all other relevant laws. Note: anyone over the age of 18 can be a trustee of a superannuation fund unless they are a "disqualified person" under SISA. An individual is a "disqualified person" if: at any time, the person was convicted of an offence involving dishonesty; or at any time, the person has been subject to a civil penalty order under SISA; or the person is an insolvent under administration (e.g. an undischarged bankrupt). Please notify your service provider before you establish your fund if any applicant for the membership of the fund is a "disqualified person"! Member - is a person who has contributions made for them or who receives benefits from the fund. In retirement, a member has the option of receiving either lump-sum payment or a pension, or a combination of both. Trust Deed - a legal document that lays down the rules within which a trust must operate and describes how benefits will accrue to the beneficiaries under the trust. Sole Purpose Test means that a super fund must be maintained solely for at least one of the core purposes such as:
Arm's Length Test means that the trustee must not invest money of the fund with related or associated parties, and must ensure that investments are made or maintained at commercial terms (be at full market value and return). In-house Asset - SIS Act 1993, Section 71, describes an in-house asset of a superannuation fund as an asset of the fund that is loan to, or an investment in, to the fund’s related party. Generally, SMSFs are restricted from lending, investing or leasing more than 5% of the fund's total assets to a related party of the fund (for more information about current restrictions in obtaining in-house assets, check SIS Act 1993, Section 73, Section 82, and Section 83). Eligible Termination Payment (ETP) - in general, ETPs are payments you receive from a super fund (other than pension payments) or from your employer on termination of employment. This may include benefits for resignation, retirement and redundancy, as well as benefits that are paid when you become permanently disabled. Payments you receive for selling your business assets, and which are then used for your retirement (called the CGT-exempt component ) are also ETPs. Some payments you receive when you leave work are not ETPs, and these include payments for unused long service leave and unused annual leave, as well as the tax-free portion of any redundancy payment and approved early retirement scheme payment. ETPs are taxed concessionally, under favourable tax rules. You can roll over your ETPs in order to defer tax. You cannot roll over payments that are not ETPs. Death benefits ETPs (which are paid in the event of a super fund member's death) are not regular ETPs, and therefore cannot be rolled into a super fund to defer tax. Salary Sacrifice - is when your super contribution is taken out of your salary before income tax is deducted at your marginal tax rate. This reduces your taxable income, usually resulting in lower income tax overall. |
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