There are rules that you must follow in running your self managed super fund. Below are some of the key rules.
Key legislation
The primary legislation for SMSF is Superannuation Industry (Supervision) Act 1993, frequently referred to as SIS Act.
The subsidiary legislation is the Superannuation Industry (Supervision) Regulations 1994.
SMSFs are regulated by the Australian Taxation Office.
Sole purpose test
The sole purpose test requires SMSF to be maintained for the sole purpose of providing retirement benefits to members, or to their dependants if a member dies before retirement.
The test is a strict test requiring exclusivity of purpose. Any trustee who maintains an SMSF for other purposes contravenes the sole purpose test.
The ATO has stated that one of the main ways that they work out if a SMSF has contravened the sole purpose test is to look at the character and purpose of the fund's investments.
The sole purpose test is complemented by other rules in the SIS Act.
Prohibited from lending money
SMSF trustee is prohibited from lending money, or providing any other financial assistance using the resources of the SMSF, to a member of the SMSF or a relative of a member of the SMSF.
Prohibited from acquiring assets from related party
SMSF trustee is prohibited from acquiring assets from trustees of the SMSF, their relatives or related entities (except for securities listed on a prescribed exchange and business real property).
Avoid in-house assets
An in-house asset is a loan to, an investment in, or a lease of an asset to, a related party or entity of the SMSF. SMSF trustee is prohibited from acquiring or maintaining in-house assets that have a total market value in excess of 5% of the total market value of SMSF assets.
An asset of an SMSF that is used and enjoyed by a related party of the SMSF, even under an informal arrangement with no payments involved, is an in-house asset of the SMSF.
In-house assets rules are complex and far reaching, and may cause inadvertent contravention. Avoid acquiring or maintaining any in-house assets.
Prohibit from borrowing (specific exception applies)
Subject to specific exception, an SMSF trustee is prohibited from borrowing or maintaining an existing borrowing of money.
A specific exception is the limited recouse borrowing arrangement that must be structured according to the SIS Act.
Do not pay member benefits early
SMSF trustee must not pay any member preserved benefits unless the member satisfies a condition of release (this is when the member has reached his or her preservation age and has retired), or there is a release authority. A release authority is a document issued by the ATO to an individual or their super fund. It is illegal and severe penalties may apply to the trustee, as well as the recipient/ member of the benefit payment. Penalties may include fines and other penalties, such as disqualification and making the SMSF a non-complying fund.
