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SMSFs and SAFs were formally known as excluded, or DIY Superannuation Funds. This topic covers:
Section 17A(1) of the Superannuation Industry (Supervision) Act 1993 defines a SMSF as a superannuation fund (section 9(1)-'superannuation fund') which meets the following basic conditions:
There are 4 exceptions to the basic conditions:
Exception 1: Where a SMSF has only one member and:
Exception 2: Where a member is under a legal disability, their legal personal representative can be a trustee. This is also the case where the representative holds an enduring power of attorney in respect of the member.
Exception 3: Where the member is a minor; a parent, a guardian, or the member's legal personal representative may be a trustee in the member's place.
Exception 4: Where a member is deceased, their legal personal representative can be a trustee up until the time that the deceased member's benefits are paid from the fund.
For classification as a SMSF under the superannuation legislation, a fund must meet all of the above conditions. The ATO has supervised SMSFs since October 1999. An income support recipient receiving the benefits from a SMSF must be a trustee of the fund. However, reversionary beneficiaries of members need not be members of the fund. Often the name of the SMSF will include the income support recipient's family name.
Example: Joan and Darby Simpson established the Simpson Family Superannuation Fund. Both Joan and Darby are trustees of the fund and they are also the only members. Darby Simpson rolls his existing superannuation benefits into this fund, and makes a significant additional contribution to the fund. Joan also makes a significant contribution to the fund. Upon retirement Darby and Joan receive benefits from the fund.
Act reference: SSAct section 9(1)-'superannuation fund'
Superannuation funds with fewer than 5 members that do not meet the conditions to be classed as a SMSF are SAFs. SAFs differ from SMSFs in that they must have a corporate trustee that is approved by APRA and the prohibition on remuneration of trustees, which applies to SMSFs, does not apply to approved trustees. SAFs are regulated by APRA.
Example: Two brothers, Felix and Igor Smith, established the Felix and Igor Superannuation Fund with the assistance of a company, Flexitime Superannuation Services Pty. Ltd. The brothers are the only members. Both brothers are too busy to undertake the day-to-day administration of the fund and they appoint Flexitime Superannuation Services as the fund's trustee. Flexitime Superannuation Services is an APRA approved SAF trustee, therefore the Felix and Igor Superannuation Fund is a SAF.
Until 1 January 2006, SMSFs and SAFs were able to offer any type of income stream, with allocated income streams being the most common type. However, from 1 January 2006, new income streams sourced from these funds are limited to allocated income streams and market-linked income streams. The funds may continue to make payments in relation to lifetime and life expectancy ATE income streams that were commenced before 1 January 2006 but, if these income streams are commuted, the assets can only be used to purchase particular type of income streams depending on the commencement date of the original income stream.
When the original income stream is commuted, it must be fully commuted, including reserves, and rolled over to the new income stream.
If the original lifetime or life expectancy ATE income stream was purchased prior to 20 September 2004, the fully commuted assets, including reserves, can only be used to purchase a lifetime or life expectancy ATE annuity (from the statutory fund or benefit fund of a life office or friendly society) that is then used to source the income stream payments from the SMSF or SAF. Alternatively, the fully commuted assets, including reserves, may be used to purchase a lifetime or life expectancy ATE income stream directly from a retail provider.
If the original lifetime or life expectancy ATE income stream was purchased from 20 September 2004 and before 1 January 2006, the fully commuted assets, including reserves, may be used to purchase a market-linked income stream from the SMSF or SAF or a lifetime or life expectancy ATE annuity (from the statutory fund or benefit fund of a life office or friendly society) that is then used to source the income stream payments from the SMSF or SAF or lifetime or life expectancy or market-linked ATE income stream directly from a retail provider.
For lifetime and life expectancy ATE income streams, they MUST:
Note:
Act reference: SSAct section 9(1)-'superannuation fund', section 1207P(1) Designated private trusts
Policy reference: SS Guide 4.9.2.10 Characteristics of pre-20/09/2004 Asset-Test Exempt Income Streams, 4.9.2.15 Characteristics of Asset-Test Exempt Income Streams Purchased from 20/09/2004 & before 20/09/2007, 4.9.4.20 General Provisions for Assessing Income Streams Paid from SMSFs or SAFs, 4.9.4.30 Documentation Required for Assessment of Lifetime or Life Expectancy ATE Income Streams Paid from SMSFs or SAFs, 4.9.4.40 Actuarial Valuation Certificate for Lifetime or Life Expectancy ATE Income Streams Paid from SMSFs or SAFs, 4.12 Means Test Treatment of Private Trusts & Private Companies from 01/01/2002
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Last reviewed: 1 October 2010
