Self-managed super funds are a great place to build wealth because they are taxed at a concessional rate. However, to be eligible for these tax concessions, the SMSF should meet the Australian superannuation legislation.
The sole purpose of a super fund, including SMSF, needs to be to provide retirement benefits to the member, or their dependants if the member passes away before retirement – this is also known as satisfying the sole purpose test. The trust deed should outline this objective. Fund trustees have responsibility to ensure that their fund meets the sole purpose test and any other objectives outlined in the legislation. Obligations of the legislations include:
- Meet residency requirements.
- Take member insurance needs into consideration.
- Adhere to the investment strategies that have been developed.
- Ensure contributions are only accepted from fund members.
- Super benefits are only given to members who meet the condition of release.
- Monitoring total super balance and transfer caps.
- Meet administration, reporting and record-keeping requirements.
- Lodge the fund’s annual return to the ATO and pay tax.
- Appoint a registered auditor
The ATO has the ability to impose penalties if an individual fails to meet these compliance requirements. The penalties will depend on severity of noncompliance. Although, obtaining professional legal advice might help avoid any penalty altogether.