Superannuation

A superannuation fund trust deed is little different from any inter vivos trust deed. Its purpose is to provide retirement benefits to the members of the fund (the beneficiaries). It will receive concessional tax treatment if:

• • it complies with the legislative requirements to bring it within the definition of a complying superannuation fund; and
• • it complies with the investment and administration requirements to maintain that status.

Complying fund

A complying fund that is a self-managed superannuation fund must have fewer than five members and must observe formal requirements that include:

• • who can be trustees of the fund;
• • who can be directors of a trustee company;
• • no remuneration to trustees; and
• • an investment strategy.

Sole purpose test

The overriding principle is that the fund is established and maintained to provide benefits for a member's retirement or for the dependants of a deceased member. A non-complying fund is subject to substantial tax penalties, including being subject to tax at the top marginal tax rate, ie a 45% tax rate, from the start of the income year in which the fund becomes non-complying.

Control of the fund

Control resides in the members but when a member dies it is critical to have a procedure in place to ensure that the assets of the fund pass to the intended persons. This can be achieved by:

• • provision in the deed itself;
• • a binding death benefit nomination; and
• • ensuring effective change of control of the trustee.

Transferring business assets to the fund

There is a general prohibition on transferring assets from a member to a fund. The major exception is business real property.

Benefits to consider include:

• • income will thereafter be taxed at the superannuation concessional rate of 15%;
• • CGT will be at a concessional rate or tax free after retirement; and
• • the property transferred will obtain some asset protection status if the business itself gets into financial difficulty.

Borrowing money

A superannuation trustee may borrow money to purchase an asset in certain limited circumstances. Restrictions include:

• • a particular borrowing must be for a single asset;
• • the asset must be held on trust by a trustee, not being the superannuation trustee;
• • third party rights against the trustee are limited to the asset only; and
• • no other charge or encumbrance against the asset is permitted.

Payment of benefits

Payment of benefits is limited by the sole purpose test and the relevant legislation. In general terms these are:

• • the deceased member’s estate;
• • a spouse;
• • children; and
• • persons in an interdependency relationship with the deceased member.

See Superannuation.