Knowledge Details

The main thing to be careful about is the restrictions on investments that SMSFs can make.

In particular there are the "in-house asset rules", which generally prohibit a super fund from investing more than 5% of the fund's assets in a related party. Normally the unit trust will be a related party, and the acquisition of the units will be an investment - so you will need to be careful about this (especially if the SMSF already has other in-house asset investments!).

For example, if the SMSF has $100,000, the maximum it can generally invest in related parties (in total) is $5000.

There are exceptions to this, but it's best to obtain specialist advice if you would like an SMSF to invest in a unit trust.

Income from a unit trust may also be "non-arm's length income" in the hands of the fund and taxed at penalty rates.

In addition, to be safest, SMSFs should only really invest in fixed unit trusts, so that they have a fixed interest in the trust's assets (and the trustee cannot "siphon" funds out of the trust by, for example, issuing units to someone else for less than they are worth).

For example:

• Assume a unit trust starts out with no assets.
• SMSF buys 100,000 units in the unit trust for $1 each.
• Individual buys 100,000 units in the unit trust for $1 in total.
• The unit trust now has $100,001, and, theoretically, the SMSF has a 50% interest in that (worth $50,000.50), and the individual also has a 50% interest in that (worth $50,000.50). So the individual has effectively siphoned funds out of the super fund.
• This can't happen with a fixed unit trust - units must be issued for what they are worth.
• But, you'll still need to consider in-house asset rules!!

Note: If we receive an order setting up a unit trust with an SMSF subscriber, unless we receive explicit instructions to the contrary, we will assume that the investment in the unit trust is consistent with the SMSF's investment strategy.

Note also that we provide a separate (non-geared) unit trust deed that is specifically tailored to having an SMSF as a unitholder. You can order this Non-Geared Unit Trust online. Of course, this unit trust deed by itself does not guarantee compliance by the SMSF unitholder with the superannuation legislation.

For more information read this Tax Warning for unit subscribers for Super Funds

Not really! We originally provided superannuation funds solely through DBA Butler Lawyers and these orders were all processed by DBA Butler’s legal team.

We have since been able to offer this service “in house” by obtaining documents from external law firms (including Holding Redlich and Hall & Wilcox). Using their deeds and documents, we are able to prepare all of the paperwork, etc, for superannuation funds, and the final product is checked by our own legal team. This arrangement has allowed us to offer those deeds at a lower price.

Obviously the deeds look different because they're drafted by different law firms, but they all comply with the current Super Fund laws, taxation laws etc.

The following Q and A’s primarily look at the deeds we provide in-house.

Yes. The Constitute deeds should be flexible enough to take into account future changes in the law, but as changes occur (which is often) our lawyers then draft changes to our new deeds as quickly as they can whilst maintaining their high quality.

If you would like to upgrade your SMSF deed, you can do so by ordering a deed of variation online.

To be a self managed superannuation fund (or SMSF), the fund needs to meet the definition of a SMSF in S.17A of the Superannuation Industry (Supervision) Act 1993.

One of these requirements is basically that, for all funds except for sole member funds, all of the members must be trustees (or directors of the corporate trustee), and all of the trustees (or directors of the corporate trustee) must be members.

However, where a fund has only one member and individual trustees, it is required to have two individual trustees.

Yes, that's true. As usual, there are a few exceptions to the general rule above. In the case of children, S.17A(3)(c) allows the parent or guardian of the child member to be a trustee (or director of the corporate trustee) of the fund in place of the member (even if the parent or guardian is already a trustee/director of the corporate trustee).

Unfortunately, in order to maintain our low prices and high services levels, we generally don't prepare any funds which go outside the general rules set out above. That is, we usually only set up SMSFs where all of the members are trustees (or directors of the corporate trustee), and all of the trustees (or directors of the corporate trustee) are members (or where a fund has only one member and two individual trustees).

Nevertheless, if so requested, we may consider amending our SMSF documents (e.g., to allow for a parent or guardian of a child to be a trustee/director of the corporate trustee in the child's place). Please contact us before placing your order if you have this situation.

In most situations it will be better for an SMSF to have a corporate trustee, rather than individual trustees. The major disadvantage of a corporate trustee is the up-front cost of establishing the company. However, there are longer-term benefits of having a company which generally outweigh the extra costs.

The following table looks at the advantages and disadvantages of a corporate trustee over an individual trustee:

The ATO also provides some helpful information here.

It's probably best to ask the bank about this, but you will also want to make sure that you have fully read the letter that came with the documents and followed the Documentation Summary.

Also, make sure that you have either completed the ATO form, or applied online, to receive an ABN or TFN for the super fund. You have 60 days after execution to complete the ATO form (although under other regulations the ATO needs notification of the contact details and other basic information in relation to the Fund and the trustee within seven days after the establishment of the Fund, so it's best to complete and send this form within seven days - refer regulations 11.03 and 11.04 of the Superannuation Industry (Supervision) Regulations 1994 (SIS regulations)).

Once you have received the ABN and TFN and notified the ATO that it will be a regulated fund, check with the bank to be sure it does not need anything else.

The Superannuation Product Identification Number (SPIN) was used for surcharge reporting purposes.

To apply for one, the fund needed to lodge a form and pay the relevant fee. The form could be obtained from the APIR Web site (www.apir.com.au).

However, since the superannuation surcharge has been abolished a SPIN should no longer be necessary (at least for new funds).

For further information, refer to http://www.apir.com.au/public/spinDirectory.jsp

An SMSF with individual trustees must have the primary purpose of paying pensions. Some practitioners argue that this in effect means that an SMSF with individual trustees cannot simply pay a lump sum benefit, and that extra paperwork is needed to evidence the pension entitlement first being requested and then being commuted.

While we do not necessarily agree with this view, it is better to err on the side of caution and have the extra paperwork in relation to the pension entitlement first being requested and then being commuted (or alternatively arrange for the SMSF to have a corporate trustee rather than individual trustees).

This may potentially result in the Australian Taxation Office deeming the fund to be non-complying and this can be disastrous, as a non-complying fund's assets (not income, but assets) can be taxed at 45%.

The deed does not specifically state that the trust can purchase business real property from its members or their associates, but that should be fine under the deed.

Clause 11.2 provides the trustee with wide powers to invest the fund’s assets, subject to complying with superannuation laws. In this regard, the SIS Act specifically allows SMSFs to acquire business real property from related parties at market value (refer S.66(2)(b)).

You should note, however, that clause 11.4 requires that the trustee and any director of the trustee disclose any interest in any investment in the manner prescribed by the Corporations Act and superannuation law whenever they have a direct or indirect interest in the investment or may benefit directly or indirectly from the investment.

Transition to retirement pensions (especially before 1 July 2007) are also known as "non-commutable pensions". Clause 31.1(b) of our latest deed permits the payment of a benefit as a non-commutable pension and clause 38 sets out the conditions that apply to these payments.  Also, "pension" as defined in clause 2 of our latest deed specifically includes a transition to retirement income stream.

More information can be found on transition to retirement pensions at http://www.ato.gov.au/super/content.asp?doc=/content/74219.htm and also at http://www.ato.gov.au/super/content.asp?doc=/Content/74202.htm.

Although someone may have bought an SMSF deed before they were fully updated, the deeds are drafted broadly to take into account future changes.

In this case, the deeds in February 2007 specifically set out the terms and conditions of certain pensions that can be paid, but clause 27.2(d) of that deed also allows the fund to pay "any other form of pension which is acceptable to the Regulator or is within the requirements of the Relevant Law on such terms as the Trustee may determine".

Holding Redlich (the law firm that drafted the 2007 version of our SMSF deed) have provided us with the following general information about the pension clauses of that deed:

"Clause 27 provides a facility for such a lump sum benefit to be converted to an income stream benefit on terms agreed between the Pensioner and the Trustee which are within the range of outcomes possible for each type of income stream. The types of income stream benefit payable under the deed include an Allocated Pension/Non-Commutable Allocated Pension (payable under the conditions set out in clause 28) and a Market-Linked Pension/Non-Commutable Market-Linked Pension (payable under the conditions set out in clause 29) and such Defined Benefit and other Pensions as are permitted under the Relevant Law."

The new "account-based pensions" (which can be paid by super funds from 1 July 2007) are basically a type of allocated pension, with more generous minimum amounts that can be withdrawn each year (and no maximum). For more information about these, and the amounts that can be withdrawn, refer http://simplersuper.treasury.gov.au/documents/decision/html/final_decision-02.asp

and also http://www.ato.gov.au/Super/Self-managed-super-funds/Accessing-your-super/Paying-benefits/#Incomestreams and about retirement income streams generally: http://www.fido.gov.au/fido/fido.nsf/byheadline/Retirement+income+streams:+fact+sheets?openDocument

The definition and terms of payment of an "account-based pension" can be found in Regulations 1.03 and 1.06(9A) of the SIS Regulations 1994 - refer http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s1.03.html and http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s1.06.html.

Our current deed provides for the payment of an account based pension at clause 31.1(b) and clause 38 sets out the conditions that apply to these payments.

Finally, where a member is receiving an allocated pension (commenced before September 2007), we can if requested arrange for this allocated pension to be converted to an account-based pension.

Our trust deed does allow for the separation of assets between members. Clause 11 sets out the trustee's investment powers with clause 11.2 outlining the numerous investment choices that can be made by the trustee and clause 11.5 specifically contemplating the trustee making separate investments for certain beneficiaries or members. The trustee is able to implement any number of investment strategies. One member can choose to have his/her account invested in accordance with a particular investment strategy that may for example, invest in a certain type of asset. Other members can choose to go with another investment strategy that may invest in quite different assets.

To go about separating assets the Trustee needs to prepare the appropriate investment strategies and provide members with information about the respective strategies. Where the Trustee establishes more than one investment strategy for certain members of beneficiaries, clause 20 requires the trustee to:

• record on whose benefit the specific investments are made for the purposes of determining allocations to the member’s account; and
• properly allocate to the applicable account credits and debits in proportion to the specific investment.

Our SMSF deed does allow for an SMSF to invest in crypto currencies such as bitcoin.

Under our current deed, refer in particular to clause 11.2(c), and also to clause 11.2(n) and the first paragraph of clause 11.2 (just before paragraph (a)).

However, it should be remembered that all investments of an SMSF are subject to the applicable superannuation legislation, in particular, to the Superannuation Industry (Supervision) Act 1993 (SIS Act) and its regulations, irrespective of the provisions of the SMSF deed.

If you have established it through Constitute, select

• An ATO regulated Self-Managed Superannuation Fund

Yes, the number of members can be up to the maximum permitted under superannuation law.