Running your own SMSF comes with a number of responsibilities, and it can be hard to keep on track of everything you need to do. This guide will provide a summary of the main things your SMSF needs to do to meet its legal and compliance obligations with the ATO, to avoid being fined.
Basic SMSF rules
Make sure your SMSF meets the following criteria:
- Your SMSF must have no more than four members.
- Your SMSF must have either an individual or corporate trustee structure. You can read more about these trustee structures here.
- Your SMSF must be registered in Australia with the ATO
- Members cannot be employees of other members (unless they're related)
- The SMSF must only be used to provide benefits to members in retirement
One of the key benefits of an SMSF is that you have much more freedom with what you can invest in. However, there are still some rules your SMSF needs to follow.
- Your SMSF needs to have a set investment strategy that is documented in writing and kept on file.
- The investment strategy needs to be continually reviewed to ensure it's meeting the needs of all members, and all changes to the strategy need to be documented.
- The SMSF assets have to be kept separately from your personal or business investments and from those of the other members.
- All investments made by the SMSF must pass the 'sole-purpose test', meaning the investments must be purely to provide retirement benefits to members. If the members of your SMSF are already benefiting from the investments, it's likely that this means you'll fail the sole-purpose test.
- Property investment made by the SMSF must follow the 'arms length' rule, meaning you can't rent the property to direct family members for cheaper rent than what would otherwise be charged, and you can't live in the property yourself.
Rules with investing in collectables and personal-use assets
SMSFs are created for retirement purposes and cannot grant benefits before retirement. If an SMSF invests in collectables (such as rare coins) and personal-use assets (such as expensive art or an antique car) it needs to comply with strict rules.
- The collectable or personal-use asset cannot be leased or partially leased to a related party, it should be for personal use only.
- It must be stored or displayed only in a private residence (if it's in a museum it's not personal use)
- The item has to be stored in a documented place for ten years and insured within seven days of its purchase
Rules around SMSF contributions
The types of contributions that an SMSF can accept from the trustees or members are employer contributions (this is the super guarantee), personal contributions, salary sacrifice contributions, super co-contributions and eligible spouse contributions.
- Any contribution has to be documented and has to be split and allocated to the fund members' account within 28 days.
- Each member's concessional contributions (these are pre-tax contributions including personal and employee contributions) must not exceed $25,000 a year.
- Members aged under 65 can contribute up to $300,000 in non-concessional (after-tax) contributions over a three-year period, provided their total SMSF balance is less than $1.4 million.
Annual SMSF ATO administration
As well as the above ongoing compliance responsibilities, your SMSF has some admin obligations to meet each year to remain compliant with the ATO.
- Your SMSF must be audited by an approved SMSF auditor each financial year
- Your SMSF must value it's assets each financial year
- Your SMSF must prepare and lodge an annual operating statement with the ATO
- Your SMSF must prepare and lodge an annual return with the ATO and pay the annual supervisory levy
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