The Superannuation Industry Supervision Act 1993 (SIS ACT) sets out a guide for all superannuation funds. The aim of the act is to provide a framework for the management of superannuation funds. For the purposes of this article, the focus will be on self-managed superannuation funds (SMSFs). The list below aims to inform startups of the relevant changes and important elements of the legislation. It is important to be aware of these to avoid any financial penalties that can result from non-compliance.
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1. The Trustee and/or the Member’s Role in SMSFs is to be in control of the administration.
If you are the trustee of an SMSF you are the person in control of the administration of the property in the fund. Sound familiar? Unlike large superannuation funds, the role of trustees in SMSFs are quite different. In a large superannuation fund, someone externally is in charge of looking after superannuation benefits. In contrast, the SIS act requires that you as the trustee make these decisions. Such responsibilities have often been referred to Compliance, Administration, Reporting and Tax Obligations (CART).
2. Life Insurance can be transferred in SMSFs
Members of SMSFs have commonly inquired into the possibility of transferring their life insurance into their SMSFs. Despite what you may think, this is in fact possible. The SIS act requires that the SMSF trustee must consider insurance needs of SMSF members before doing so. However, there is an exception. Life insurance policies that exist outside of a super fund are not able to be transferred into SMSFs.
3. SMSFs and Investments: Recent Changes (Collectibles)
An important to change to be aware of are changes regarding the holdings of collectibles and their storage and insurance. Although the changes are not in effect until July 2016, it is important for SMSF members to be aware of how this change impacts them. To read up on this more the Australian Taxation office provides a summary of the regulations of SMSFs and collectibles.
4. As trustee you need to organise an audit of SMSFs
Section 128B of the SIS act requires that trustees of SMSFs must appoint an ‘approved SMSF auditor’ for every financial year. This must be done to audit the funds operations and respectively the trustee must be given a full audit report in the correct form.
5. Sole Purpose Test; providing benefits to members.
As a trustee of an SMSF it must be understood that it is your responsibility to manage the fund for the sole purpose of providing benefits for its members. These benefits are attained upon retirement, death or when a certain age is reached. To formally acknowledge this responsibility, a trustee must sign a declaration.
Note: The above mentioned list are just some of the many ins and outs of the SIS act. This list is useful for startups to gain an initial understanding of the broad framework of the SIS act. As this list is not entirely comprehensive it is essential that trustees of SMSFs navigate their way around the act to have a full understanding. If a trustee fails to follow the rules set out in the SIS act it is likely that financial penalties will follow.
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