A Self-Managed Superannuation Fund (SMSF) must comply with strict trustee structure requirements to maintain its status as a complying superannuation fund under Australian law. Whether an SMSF has individual trustees or a corporate trustee, different rules apply. Understanding these structures is essential for ensuring compliance and protecting the fund’s tax concessions.
Types of SMSF Trustee Structures
An SMSF must be structured in one of the following ways:
- Corporate Trustee – The SMSF is managed by a company, where each member is a director of the corporate trustee.
- Individual Trustees – The SMSF is managed by individual trustees, where each member is a trustee.
- Single-Member SMSFs – Special rules apply when there is only one member in the fund.
Rules for SMSFs with Multiple Members
For an SMSF with up to six members to qualify as a complying fund, it must meet these conditions:
- The fund has no more than six members (the previous limit was four members before 1 July 2021).
- If the fund has individual trustees, each trustee must be a member of the fund.
- If the fund has a corporate trustee, each director must be a member of the fund.
- No member can be an employee of another member unless they are relatives.
- Trustees and directors cannot receive remuneration for their duties related to the SMSF.
Rules for SMSFs with a Single Member
A single-member SMSF must follow one of these structures:
- If the fund has a corporate trustee, the member must be:
- The sole director of the corporate trustee, OR
- One of two directors, with the second director being a relative or an unrelated person who is not an employee.
- If the fund has individual trustees, the member must be:
- One of two trustees, and the second trustee must be a relative or an unrelated person who is not an employee.
Can Children Be SMSF Members?
Minors under 18 years of age can be SMSF members, but they cannot act as trustees. Instead, their parent or legal guardian must act as a trustee on their behalf.
Example: Andy and Tanya are SMSF trustees. They want their 15-year-old daughter, Madeline, to join their SMSF. Since she is under 18, Tanya can act as her trustee while also being a trustee in her own right.
The Employment Rule for SMSFs
A common rule that causes confusion is that no member can be an employee of another member, unless they are relatives. This prevents employer-employee relationships from influencing fund decisions.
Example: Darryl and Amanda run a small business and are SMSF trustees. Darryl wants to add his employees, Tom and Sam, as members of the fund. However, because Tom and Sam are employees and not relatives, they cannot join the SMSF.
Special Considerations for Company Directors
While company directors are usually considered employees of their company, they are not considered employees of other directors for SMSF purposes. This means non-related company directors can be SMSF members together.
Example: Darryl and Amanda restructure their business and appoint Tom and Sam as directors of their company. Since Tom and Sam are now directors and not just employees, they can join the SMSF.
Legal Personal Representatives Acting as Trustees
In certain situations, a Legal Personal Representative (LPR) can act as a trustee on behalf of a member. This includes:
- A parent or guardian acting on behalf of a minor.
- An executor of a deceased estate acting on behalf of a deceased member.
- A person holding an Enduring Power of Attorney acting for an incapacitated member.
Who Cannot Be an SMSF Trustee?
Not everyone can be an SMSF trustee. A person is disqualified if they:
- Have been convicted of dishonest conduct.
- Have received a civil penalty order.
- Are an undischarged bankrupt.
- Have been disqualified by the ATO or APRA.
If a trustee becomes disqualified, they must immediately resign, and the SMSF must be restructured or wound up.
When an SMSF Needs to Be Restructured
If an SMSF no longer meets the trustee structure requirements, it must be restructured within six months. This can happen when a trustee:
- Dies, leaving no other eligible trustees.
- Becomes bankrupt, making them ineligible.
- Leaves the SMSF, reducing the fund below the required number of trustees.
Trustee Remuneration Rules
SMSF trustees cannot receive any remuneration for performing their trustee duties. However, if a trustee provides professional services to the SMSF (e.g. accounting or legal work), they may be paid at arm’s length rates.
Example: Bob, a professional painter, is the director of his SMSF. His SMSF owns an investment property, and he is hired to repaint it. Since painting is not a trustee duty and he charges market rates, Bob can be paid for his services.
Final Thoughts
Selecting the right SMSF trustee structure is critical for compliance and effective fund management. Trustees must ensure their SMSF meets legal requirements, particularly when making changes to members or trustees. Regular reviews and professional advice can help avoid compliance risks and ensure long-term fund success.