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Rules and duties of SMSF trustees

Learn about some of the key responsibilities that apply to SMSF trustees, including the sole purpose test, investment rules, record-keeping and Australian Taxation Office (ATO) reporting.

Running a self-managed super fund (SMSF) gives you direct control over how your retirement savings are invested. It also comes with legal responsibilities. 

Whether you act as an individual trustee or as a director of a corporate trustee company, you're legally responsible for running the fund and following superannuation and tax laws. You remain responsible for decisions made on behalf of the fund, even if you use a professional, such as an accountant, administrator or financial adviser.  

Here's what you need to know about your core duties, investment rules, and ongoing obligations.

  1. The sole purpose test 
  2. Your duties as a trustee 
  3. SMSF investment and transaction rules
  4. Your fund's investment strategy 
  5. Record-keeping and reporting obligations 
  6. What happens if you don't meet your obligations

 

1. The sole purpose test

Under the Superannuation Industry (Supervision) Act 1993 (or SIS Act), an SMSF must meet the sole purpose test.  

This means the fund must be maintained with the sole purpose of providing retirement benefits to members, or death benefits to their beneficiaries if a member passes away. It may also provide certain other benefits under super law, such as benefits for permanent incapacity or ill-health. 

What this means for your SMSF

The fund's investments, transactions and expenses must be consistent with its purpose of providing retirement, death or other benefits allowed under super law.

What is not permitted

The fund generally cannot provide members, relatives or other related parties with a personal financial benefit before retirement, e.g. providing a personal loan or buying an asset for personal use.

2. Your duties as a trustee

When managing an SMSF, you must wear your "trustee hat" and act impartially for the benefit of all fund members.

  • Act honestly and carefully: Manage the fund with integrity and take reasonable care to protect members' retirement savings 
  • Act in all members' best financial interests: Treat members fairly and follow the trust deed when making decisions or resolving disputes 
  • Keep fund assets separate: Your SMSF should have a dedicated bank account and hold assets in the correct legal name of the trustees on behalf of the fund 
  • Deal at arm's length: Make transactions, agreements and leases on commercial terms that reflect market value 
  • Follow the rules: Run the fund in line with its trust deed and current superannuation laws

Learn more: Your obligations as an SMSF trustee - Australian Taxation Office

3. SMSF investment and transaction rules

Unlike APRA-regulated funds, SMSFs may offer broader investment choices than APRA-regulated funds, but they are subject to specific investment and transaction restrictions.

Key restrictions include:

  • Buying assets from related parties: Generally not allowed, with limited exceptions e.g. listed shares or business real property bought at market value
  • Leasing property to related parties: Residential property cannot be leased to a related party. Business real property must be leased on commercial terms at market value
  • Collectables and personal use assets: Investments such as artwork, wine, or classic cars must meet strict storage and insurance rules. Related parties cannot use them or keep them in their private residence
  • Paying trustees: Trustees cannot be paid for carrying out their trustee duties
  • Early access and loans: The fund cannot lend money or provide financial assistance to members or their relatives. Members may only withdraw money after meeting a legal condition of release

Note: A related party includes a fund member and their associates, such as relatives, business partners, and their spouses or children. 

Learn more: What are the SMSF restrictions? - Australian Taxation Office 

4. Your fund's investment strategy

Your SMSF is required to create and regularly review an investment strategy that reflects the retirement goals of all members. 

The strategy should be in writing, and consider:

  • Risk and return: The risk profile and expected returns across all fund investments
  • Diversification: Spreading investments across different asset classes to minimise exposure
  • Liquidity and cash flow: The liquidity of investments, and ability of the fund to pay existing and potential liabilities, taxes, and member benefit payments when they’re due
  • Insurance: Whether to hold insurance for members, e.g. life, total and permanent disability (TPD), or income protection insurance

The ATO expects you to formally review the investment strategy each year and update it when the fund's circumstances change, such as when a member joins, leaves or retires. 

Learn more: Create your SMSF investment strategy - Australian Taxation Office 

5. Record-keeping and reporting obligations

You must keep accurate administrative records for your annual audit and to meet Australian Taxation Office (ATO) requirements.  

How long to keep records

  • Keep for at least 5 years: Financial statements and accounting records, including SMSF annual returns (SAR), and records of contributions, rollovers and benefit payments 
  • Keep for at least 10 years: Key trustee records, including signed trustee declarations, meeting minutes, investment decisions, and trustee or director changes 
  • Keep the SMSF trust deed (and any amendments) for as long as the fund exists

Key annual and reporting obligations:

  • Appoint an auditor: Every financial year, you must appoint an approved SMSF auditor at least 45 days before your SAR is due to be lodged. The audit must be completed before you lodge the return.
  • Lodge an SAR: Report income tax, member contributions, and regulatory information, and pay the annual ATO supervisory levy 
  • SMSF event-based reporting: Lodge transfer balance account reports (TBARs) for reportable events within the required ATO timeframes 
  • Notify the ATO of changes: Any change in fund details (such as trustees, directors, address, or bank details) must be reported to the ATO within 28 days

6. What happens if you don't meet your obligations

If you do not meet your trustee obligations, the ATO may take compliance action, including:

  • Administrative penalties: Fines may be issued directly to trustees, which cannot be paid for or reimbursed using SMSF funds
  • Rectification and re-education: You may be ordered to fix the breach and complete approved trustee education courses
  • Disqualification: You may be banned from acting as an SMSF trustee or director of the corporate trustee
  • Loss of complying status: The fund loses its concessional tax treatment. Its taxable income is generally taxed at the highest marginal rate, and additional tax consequences can arise when the fund becomes non-complying.

    A non-complying fund's taxable income is generally taxed at the highest marginal rate. The fund's assets are not themselves simply taxed at that rate. There can instead be an additional assessable-income consequence calculated by reference to asset values when a fund becomes non-complying.

    Learn more: SMSF non-compliance actions - Australian Taxation Office
  • Other serious penalties: Asset-freezing, or civil and criminal penalties may apply for deliberate non-compliance or fraud

 

Managing an SMSF comes with ongoing responsibilities. Keeping clear records, regularly reviewing your fund and meeting reporting deadlines can help you meet your obligations as a trustee.  

An SMSF professional can help you understand how the rules apply, but you remain responsible for running the fund and the decisions made on its behalf.

Visit the ATO website for current SMSF guidance

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Distributed by Commonwealth Bank

Things you should know

SMSFs are complex and involve legal, administrative and compliance responsibilities. SMSF trustees (or directors of a corporate trustee) are responsible for managing the fund and ensuring it complies with all applicable requirements such as superannuation, tax and trustee obligations.

This article is intended to provide general information of an educational nature only. The information may include general advice but does not take into account your individual objectives, financial situation, needs or tax circumstances, and so you should consider the appropriateness of the advice having regard to your circumstances before acting on it. Where applicable, you should obtain and read the relevant Product Disclosure Statement (PDS) and other important disclosure documents before making a decision about acquiring or continuing to hold a product. You should consider seeking independent professional financial, tax and/or legal advice before making any decision based on this information.

The above information is not tax advice. Taxation laws are complex and subject to change. Commonwealth Bank does not provide tax (financial) advice under the Tax Agent Services Act 2009 (Cth). You should consider seeking independent tax advice from a registered tax agent, accountant or adviser before you make any decisions based on this information.

The information in this article and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its publication but no representation or warranty, either expressed or implied, is made or provided as to the accuracy, reliability or completeness of any statement made in this article.