Update your Self Managed Super Fund by 31 March or lose your "Self Managed" status

Update my SMSF - Instruction Form

Since 31 March 2000, Self Managed Super Funds (SMSF)  have a new definition. This is thanks to the Superannuation Amendment Act (3) - SLAB3.

SMSF with 4 or less members have until 31 March 2000 to satisfy the new definition. If you SMSF fails the test at midnight on 31 March 2000 then you must appoint an "independent approved trustee". Your SMSF then becomes a "small APRA fund" and remains regulated by APRA (instead of the Tax Office).

Why has the government done this to me?

The government wants all members of Self Managed Superannuation Funds (SMSF) to be active. In the good old days (before SLAB3) you could let you mum and dad be trustee of your SMSF. When something went wrong you just told the government that it wasn't your fault. "The naughty Trustees did it. I am innocent." The government has had enough. All members of SMSF have to be the sole trustees as well.

Therefore, the general rule is that if you are a member of a SMSF, then you are the trustee. If you are a trustee, then you must be a member.

The government is keen for SMSF to be self-regulated and that individuals in these funds are not subservient to anyone else in the fund.

What is a Self-Managed Superannuation Fund?

For a start, you need four or less members. Members of the fund also have to be trustees of the fund. Trustees of the fund have to be members of the fund. Each member is forced to participate in the decision making process of your fund. To protect all members of your fund, no member can be the employee of another member. The only exception is members who are “related”.

Can you have a One Member SMSF?

Yes! But you have to have either: (1) a private company as a Trustee (known as a Corporate Trustee) or (2) a second Trustee (a natural person).

Which one do you want a Corporate Trustee or a Natural Person?

Corporate Trustees are expensive and complicated to run. Consult your Accountant and Adviser about the cost.

So, you don’t want a Corporate Trustee?

Your fund must then have another individual as trustee. That person must be a “relative” of yours or a any person who is not your employer.

It is possible to have a SMSF with only one member.

If Mum and Dad are members of the Fund, who are the Trustees?

The answer is simple: Mum and Dad. The members of SMSF are the trustees and the trustees are the members. If you and your spouse are already the sole trustees and are the sole members then, on the face of it, your SMSF complies with SIS regulations already. Well done. Stop reading now and go and have a glass of red wine.

If you have further questions, read on.

My Lotto Syndicate wants to begin a SMSF. Can we do it?

The question is how many people in your Lotto Syndicate want to join your SMSF?

You can’t have any more than four persons wanting to join. Four is the maximum number of members you can have in a SMSF. Also, there is a rule that if your boss is involved in your Lotto Syndicate, she cannot participate in your SMSF. Employees and employers cannot be involved in the same SMSF (unless they are "related").

What is an “employee”?

The definition of "employee" is very wide ranging. Consult your Adviser, Accountant or Tax Lawyer for a precise definition. In short, the aim of the rule against employee and employers (unless they are related) participating in the same fund is to make sure that all members of your fund are in a position to adequately look after their own interests.

Who is related to you?

Mum, Dad, son, daughter, Grandmother, Grandfather, brother, sister, Aunt, Uncle, great-aunt, great-uncle, niece, nephew, first or second cousin of you or your spouse. Includes the above relationships by adoption or remarriage. Your ‘spouse’ includes your defacto spouse (living in sin, so to speak).

WHO ISN’T RELATED TO YOU?

Your lover, boyfriend, girlfriend, mistress, barber, Adviser, Accountant and Tax Lawyer for a start.

Your eyes are beginning to glaze over. Don’t despair. Your Accountant, Adviser or Tax Lawyer have the jargon down pat. Give her a call to discuss your questions!!

My boyfriend is 17. I want him in my SMSF. Can he join?

Persons under 18 are considered legally disabled. This is fair enough when one considers that they weren’t allowed to vote for the government that introduced these changes. How disadvantaged can one get? For the purposes of Superannuation, persons legally disabled cannot be trustees of Superannuation funds. Your toy boy is under a “legal disadvantage” because he is under 18 years of age. He is a minor. If your toy boy has a “legal personal representative” then that person can be trustee.

Who is a “legal personal representative”?

An example of a legal personal representative is your toy boy’s wife. But, if he is not married, his legal personal representative is his Mum and Dad. If his Mum and Dad are dead, then his guardian can act as Trustee on his behalf.

According to the Australian Tax Office, a personal legal representative can also be a person who holds a Mutual Power of Attorney, a Cascading Power of Attorney or an Enduring Power of Attorney on behalf of another person.

Screen starting to go blurry again?

Don’t worry. Your Accountant, Adviser or Tax Lawyer understand these terms and are waiting for you to ask. Don’t be shy.

So in answer to your question, get the consent of his guardian or personal legal representative and the boy is in!! Of course, waiting until the boy (person concerned) becomes of age is one way around this. If you are dumped for a younger person, it may prove cheaper too!!

You are a member of SMSF and you die. What happens?

Well, chances are you will not need the proceeds of the SMSF anymore.

Do the surviving members of the SMSF take all your super?

No. Your personal legal representative is allowed to be a Trustee in your place until your Estate is paid out. So, unfortunately, for the surviving members of the SMSF, this does not mean that the survivors take all.

What about Directors of Corporate Trustees?

The same applies. If you are a deceased Director of a Corporate Trustee, your personal legal representative can act for you.

Example One: Lotto Luck

Four friends have been in a Lotto Syndicate for a number of years. One of them, Beryl read an article on the Internet about the advantages of investing in a SMSF. As all of them are rampant greenies they like the idea of being able to control the direction of their combined Superannuation funds. Are they eligible to have a SMSF?

Yes. Provided that all members of the SMSF are also trustees of the SMSF. But if one of the four employs another of the four then they cannot be members of the same SMSF. That is, there can be no Employee/ Employer relationships in SMSF.

Beryl’s lover Julie is jealous of Beryl’s involvement in the management of the fund. Julie wants to come on board. Can she?

No. SMSF are only for up to four members. The fund will cease to be a SMSF if the number of members increases to more than four.

Tamara (another member of the SMSF) overdoses on the good life and dies. Does this mean the fund is at an end?

No. Tamara’s legal personal representative can act as trustee until death benefits are distributed from the fund. The membership of the fund has now been reduced to three people. Julie can now join the fund, if she still wants to.

John is Beryl’s brother. He is also Beryl’s employee. Can he be a member of the fund?

Yes, as long as the total number of members is four or less. As he is a relative of Beryl’s it does not matter that he is also her employer. The fund still meets the definition of SMSF.

Example Two: Accounting for relationships

John and Julian are partners in an Accounting House. Through a service trust, John employs Julian. Can they be members of the same SMSF?

No. As John employs Julian, unless they are related, they cannot be members of the same SMSF.

Julian decides to start his own SMSF. His problem is he needs another Trustee. Can he employ someone to help him administer his SMSF?

No trustee is entitled to be paid for any services they perform other than be reimbursed for out of pocket expenses. This fits in with the government’s aim of keeping SMSF in the control of the individuals who are the members of the fund. Julian has to find a Trustee that does not expect payment.

Summary

You may not have to update your SMSF Deed. It may be OK if it complies with this:

• With 2 - 4 members:

  • All members are trustees (or directors of the trustee company). There are no other trustees (or directors); and

  • No member can be an arms length employee of another member. This includes an entity (like a Unit Trust or company) in which another member has a specific interest.

• With 1 member:

  • You must be one of 2 trustees (or the director of the Trustee company). The other trustee (or director) can't be your employer (unless related).

Note: Regulations ensure that unrelated directors of the employer-sponsor of a small fund are not deemed to be employees of one another.

I want to update my SM Super Fund and I want Binding Nominations. What do I do?

Your next port of call should be your Adviser, Accountant or Tax Lawyer for advice that is specific to your needs. You can  update your old SMSF for Binding Nominations over the web - right now.

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