Basic Rules for Trustees of an SMSF

Basic Rules for SMSF Trustees

Is a SMSF right for you?
Here are some basic guidelines for Trustees of an SMSF:


Build your SMSF Support Team

You'll need an Accountant, an SMSF Auditor, a Financial Advisor, and possibly a Lawyer who can work together to support the Trustee of the SMSF.


Get your Personal Estate Planning in Place Now

Get your own financial house in order and establish your Will, Power of Attorney and Power of Enduring Guardianship documents.


Get to Know The Rules for Managing your SMSF

The ATO has useful information and instructional videos to assist Trustees of SMSFs you can see here.


Create your Investment Plan and Work on a Strategy

The ATO states, ‘SMSFs are required to prepare and implement an investment strategy to help meet their investment and retirement goals. The investment strategy is not designed to be a 'set and forget’ document but rather a strategy you continuously review to ensure you are meeting your retirement plans.’


Maintain the Liquidity Needs of your SMSF

The Trustee of an SMSF is required to regularly consider the liquidity needs of the fund and its members. As the purpose of your SMSF is to build up a pool of assets to sustain your lifestyle throughout your retirement, if the fund’s assets are primarily held in property, being a bulky assets, this may not give you the required liquidity.


Document your Decisions, Meetings & Strategy Reviews

Your SMSF Auditor will need to ‘evidence you are running a complying SMSF’ and this will require documentary evidence to support your good decisions.


Plan Ahead for the future transfer from the Accumulation Phase to the Pension Phase

Understand how ‘lumpy’ (relatively illiquid) assets may affect the funds ability to make the annual minimum drawdown each year in pension phase, to maintain the funds tax-exempt status, so a strategy to manage this phase will be needed ahead of time.


Stay Connected to Good Advice

The SMSF legislative environment continues to change and develop so Trustees of an SMSF need a way to maintain their knowledge of key changes and requirements. This is where building a long-term relationship with your advice team contributes significant value to your SMSF strategy.

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Understanding SMSF Core Rules and Regulations

If you want greater control over your super and more flexibility than you would get with a conventional super fund, then a Self Managed Superannuation Fund (SMSF) could be an attractive option.

However, they are more complex and also strictly regulated.

An SMSF is a superannuation fund that you manage yourself.

Most people have their super with a fund that is managed by a third party – a fund manager, a large corporation or an industry body. However, a growing number of people have decided to manage their own super funds which are known as SMSFs.

An SMSF provides retirement benefits for its members in the same way as any regular larger superannuation fund but there are some differences in how they are regulated by the government and how they are administered.

Stages of the fund

SMSFs can have members in either the accumulation phase, the pension phase or a combination of both.

Accumulation phase

  • The accumulation phase of an SMSF is where the SMSF accumulates contributions and aims to grow your balance for future retirement needs.
  • Each member has a specific balance in the SMSF and earnings are generally allocated in proportion to their interest in the SMSF.

Pension phase

  • This is where the accumulated funds are used to provide an income stream for the member of the SMSF based on their individual balance in a pension account of the SMSF.

Key rules and regulations

The rules and regulations that govern SMSFs are stringent. The governing legislation for SMSFs is the Superannuation Industry (Supervision) Act 1993, commonly referred to as the SIS Act. Here are some key rules you should be aware of.

The sole purpose test

The sole purpose test requires that SMSFs are maintained to provide benefits to members upon their retirement, or to their dependants if a member dies.

As a trustee of a regulated superannuation fund, you must comply with the sole purpose test for the SMSF to be eligible for superannuation tax concessions.

The sole purpose test is divided into core and ancillary purposes.

A regulated SMSF must be maintained solely for either:

  • One or more core purposes, or
  • One or more core purposes and one or more ancillary purposes.

Core purpose

An SMSF must be maintained to provide benefits for each member of the SMSF on or after at least one of
the following:

  • The member’s retirement
  • The member reaching an age not less than prescribed in regulations
  • The member’s death, if the death occurred before they retired, and the benefits are provided to their dependants or legal personal representative or both
  • The member’s death, if the death occurred before they attained an age not less than prescribed in regulations, and the benefits are provided to their dependants or legal personal representative or both.

Ancillary purpose

Ancillary purposes for maintaining an SMSF are to provide benefits for members in the following circumstances:

  • Termination of a member’s employment with an employer who made contributions to the SMSF for that member
  • Physical or mental ill health
  • Death of a member after retirement where the benefits are paid to their dependants or legal personal representative (LPR) or both
  • Death of a member after reaching an age not less than prescribed in regulations where the benefits are paid to their dependants or legal personal representative or both&
  • Another ancillary purpose is approved in writing by the regulator.

This allows an SMSF to provide benefits in situations of financial hardship and/or on compassionate grounds, subject to the SIS Act, the governing rules of the SMSF and the approval of the appropriate regulator.

How we can help

Understanding that managing your SMSF involves additional time requirements, learning and working with professionals is part of the duties of an SMSF trustee and a key part of providing for yourself and your family into retirement, while you plan to increase your investment returns to sustain the financial needs of your retirement.

Contact us for a confidential chat about your SMSF needs.

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