This article is for people who are trustees of a self-managed super fund, or directors of its corporate trustee, and for anyone weighing up whether to set one up. It explains the SMSF trustee duties that sit with you personally, where they come from and what each one asks of you in practice. Our checklists for the new financial year and year-round obligations cover the tasks. This piece covers the law behind them.
SMSF trustee duties start with a declaration you sign within 21 days
Every new trustee, and every new director of a corporate trustee, must sign the ATO's trustee declaration within 21 days of taking on the role. Each person signs their own. By signing, you confirm that you understand your duties and responsibilities under super law, and you take those duties on personally.
You must keep the signed declaration for at least ten years, or for as long as you remain a trustee if that is longer. You do not send it to the ATO, but the ATO or your auditor can ask to see it, so it belongs in the fund's permanent records alongside the trust deed.
The ATO publishes the investment requirements for SMSFs, which sit behind several of the duties below and are worth reading alongside the declaration.
Members and trustees are the same people
A self-managed fund works on the principle that the people whose retirement savings are in the fund are the people who run it. With limited exceptions, every member must be a trustee or a director of the corporate trustee, and every trustee or director must be a member. A fund with one member needs either a corporate trustee or a second individual trustee to meet the rules.
The practical consequence is that each member carries the trustee duties in full. A member who leaves the investment decisions to a spouse or business partner is still legally responsible for those decisions.
The sole purpose test sits over everything else
The fund must be maintained for the purpose of providing retirement benefits to members, or benefits to their dependants if a member dies. Every investment has to be made and kept for that purpose.
The ATO's examples show where the line falls. A holiday house owned by the fund and used by a member for a weekend away provides a benefit before retirement. Artwork owned by the fund and hung in a trustee's home does the same. So does a personal reward a member receives for directing the fund's money into a particular investment. In each case the investment may be sound, and the benefit to someone connected with the fund is what creates the breach.
The investment strategy is a legal document
The law requires trustees to prepare, implement and regularly review an investment strategy for the fund. The strategy has to consider the risk of the fund's investments, the likely return, diversification and the risk that comes with holding too few assets, liquidity against the fund's expected cash needs including benefit payments, and whether the fund should hold insurance for its members.
A fund holding a single property with a mortgage over it can still have a valid strategy, provided the strategy deals honestly with concentration and liquidity and the trustees can show they considered both. The review should happen at least annually and whenever a member's circumstances change, and the minutes should record it.
The fund's assets stay separate from yours
The money and other assets of the fund must be kept separate from the trustees' own money and assets, and from the assets of any business the trustees own. In practice that means a bank account in the fund's name, investments registered to the trustees in their capacity as trustees of the fund, and evidence of ownership for each asset.
A contribution or a rental receipt that passes through a personal account on its way to the fund is enough for an auditor to raise the question, even when every dollar arrives.
The transactions the law restricts
Subject to limited exceptions, trustees are prohibited from giving financial assistance to a member or a member's relative using the fund's resources. That includes lending them money. Trustees also cannot acquire assets from members or other related parties, with exceptions that include business real property and listed securities.
Borrowing is prohibited outside a limited recourse borrowing arrangement that meets the rules. Every investment must be made and kept on an arm's length basis, so the price and the income reflect market value. In-house assets, which include loans to and investments in related parties, are limited to 5% of the market value of the fund's total assets.
The records you must keep, and the auditor you must appoint
Minutes of trustee meetings where matters affecting the fund were decided must be kept for at least ten years. That includes investment decisions, decisions to admit members or appoint trustees, and decisions about members retiring and benefits being paid. The fund's annual financial statements, operating statements, lodged returns and accounts must be kept for at least five years.
Each year the trustees must appoint an approved SMSF auditor no later than 45 days before the fund's annual return is due, give the auditor the documents they ask for, and lodge the annual return by its due date. Our article on SMSF audit requirements sets out what the audit covers.
What the ATO can do when a duty is not met
The declaration itself lists the ATO's powers. It can impose administrative penalties on trustees personally, direct trustees to rectify a contravention or to complete an approved course of education, and enter into enforceable undertakings with them. It can also disqualify a person from acting as a trustee of any super fund, remove the fund's complying status, and in serious cases prosecute.
Each of these attaches to the trustee as an individual, which is why the declaration is signed by each person and not by the fund.
Questions we are asked
What are the main SMSF trustee duties?
Trustees must run the fund for the sole purpose of providing retirement benefits, prepare and regularly review an investment strategy, keep the fund's assets separate from their own, avoid the restricted transactions, keep the required records, appoint an approved auditor each year and lodge the annual return on time.
When do I need to sign the SMSF trustee declaration?
Within 21 days of becoming a trustee or a director of the corporate trustee. Each new trustee or director signs their own declaration and keeps it for at least ten years.
Can one trustee make the decisions for the fund?
The trustees can agree on how decisions are made, but every trustee remains legally responsible for them. A member who is a trustee cannot pass that responsibility to another trustee.
Can my SMSF lend money to me or my family?
No. Trustees are prohibited from giving financial assistance to members or their relatives using the fund's resources, and a loan is financial assistance.
How long do SMSF records need to be kept?
Minutes of trustee decisions and the trustee declaration for at least ten years. Annual financial statements, operating statements, lodged returns and accounts for at least five years.
Talking through your fund
If you would like to check how your fund measures up against these SMSF trustee duties, or you are deciding whether to set one up, our SMSF team can walk you through it. Book a time with us and bring your trust deed and current investment strategy.
