Accumulation fund
An SMSF is an accumulation fund if the SMSF provides its members with a benefit which is the total of:
- specifically defined contributions to the SMSF
plus
- earnings on those contributions
minus
- any costs attributed to the member.
This SMSF is considered an accumulation fund even if the SMSF or any of its accounts is supporting a super income stream benefit.
Active member
A member is considered to be an active member of an SMSF if:
- they are a contributor to the SMSF, or
- contributions to the SMSF have been made on their behalf (and they are not covered by the next paragraph).
A member on whose behalf contributions have been made to the SMSF is not an active member if:
- they are not a resident of Australia
- they are not currently a contributor, and
- the only contributions that were made on their behalf after they ceased to be an Australian resident were made in relation to a time when they were an Australian resident.
Approved compassionate payment
An approved compassionate payment is a lump sum payment paid to a member on compassionate grounds (for example, for medical treatment, mortgage assistance when the lender is considering repossessing or selling the member's home, funeral costs for a dependant, home or vehicle modifications due to disability). Services Australia determines whether a member has satisfied the criteria for a release of super benefits under compassionate grounds.
For more information, see Conditions of release.
Arm's-length income
Income is arm's-length income unless it meets the definition of non-arm's-length income. Complying SMSFs must consider each component of their income and decide if it is non-arm's-length income.
Australian super fund
If an SMSF satisfies all three of the following tests at the same time at any point in the income year then it is an Australian super fund for the entire income year:
- The SMSF was established in Australia, or at least one of the SMSF’s assets is located in Australia.
- The central management and control of the SMSF is ordinarily in Australia.
- Either
- the SMSF has no active members, or
- it has active members who are Australian residents and who hold at least 50% of
- the total market value of the SMSF's assets attributable to super interests held by active members, or
- the sum of the amounts that would be payable to, or in respect of, active members if they voluntarily ceased to be members.
If the SMSF does not meet the definition of Australian superannuation fund at all times during the income year, the SMSF is not a complying SMSF and it will not receive the concessional rate of tax.
For more information, see Taxation Ruling TR 2008/9 Income tax: meaning of ‘Australian superannuation fund’ in subsection 295-95(2) of the Income Tax Assessment Act 1997.
Central management and control
The central management and control of an SMSF is ordinarily in Australia if the SMSF’s strategic and high level decisions are regularly made in Australia. These decisions are generally made by the trustees of the SMSF.
The SMSF will continue to meet the central management and control requirement in cases where the SMSF’s central management and control is temporarily, that is for a period of 2 years or less, outside Australia. The SMSF will not continue to meet the central management and control requirement if the central management and control of the SMSF is permanently outside Australia.
Child
A person's children include:
- their adopted children, stepchildren or ex-nuptial children
- their spouse's children
- someone who is the person's child within the meaning of the Family Law Act 1975 (for example, a child who is considered to be a child of the person under a State or Territory court order giving effect to a surrogacy arrangement).
Complying SMSF
The compliance status of an SMSF affects how you report income and the tax rates that apply. An SMSF is a complying super fund if:
- it is an Australian superannuation fund at all times during the income year, and
- we have not issued the SMSF with a Notice of non-compliance.
A tax rate of 45% applies to the taxable income of a non-complying SMSF. In the year that an SMSF becomes a non-complying SMSF, the SMSF will typically pay additional tax as a result of that change in its status. For more information, see T Assessable income due to changed tax status of fund.
Contribution
A contribution can be anything of value that increases the capital of an SMSF provided by a person whose purpose is to benefit one or more members of the SMSF.
For more information about our view on the meaning of contribution, how a contribution can be made and when a contribution is made, see Taxation Ruling TR 2010/1 Income tax: superannuation contributions.
Death benefit
A death benefit is a lump sum benefit payment or income stream benefit payments made by the SMSF to a person other than the member because of the death of the member of the SMSF.
For more information, see Death of a member.
Defined benefit fund
An SMSF is a defined benefit fund if the SMSF provides its members with a benefit that is calculated from a formula based on a combination of factors, including the years of membership in the SMSF and average salary level over a specific time.
Dependant
A dependant for death benefit purposes is:
- a spouse or de facto spouse of the deceased
- a former spouse or de facto spouse of the deceased
- a child of the deceased under 18 years of age
- a person who, at the time of death, relied on the deceased for financial maintenance, or
- any person who, at the time of death, lived with the deceased in a close personal relationship where one or both of them provided the other with financial and domestic support and personal care.
A non-dependant for super death benefit purposes is a person who does not fall into one of the categories of dependants listed above.
Exempt current pension income
If the SMSF paid retirement phase superannuation income stream benefits to one or more members during the current income year, some or all of its otherwise assessable income is tax exempt under the 'exempt current pension income' rules unless it is non-arm's-length income or assessable contributions. This tax exempt income is known as 'exempt current pension income' or ECPI.
For more information, see Self-managed super funds and tax exemptions on pension assets.
Forestry managed investment scheme initial participant
The SMSF is an initial participant in a forestry managed investment scheme (FMIS) if:
- the SMSF obtained its forestry interest in the FMIS from the forestry manager of the scheme, and
- the SMSF’s payment to obtain the forestry interest in the FMIS results in the establishment of trees.
The forestry manager of an FMIS is the entity that manages, arranges or promotes the FMIS.
A forestry interest in an FMIS is a right to the benefits produced by the FMIS (whether the right is actual, prospective or contingent and whether it is enforceable or not).
Forestry managed investment scheme subsequent participant
The SMSF is a subsequent participant in an FMIS if it acquired its interest through secondary market trading. This means it acquired its interest other than as an initial participant, usually by purchasing that interest from an initial participant in the scheme.
Net exempt income
A resident SMSF's 'net exempt income' is the SMSF's gross exempt income less expenses (other than capital expenses) incurred in deriving the exempt income and any taxes payable outside Australia on that exempt income.
Net exempt income includes:
- exempt current pension income
- amounts that are not included in assessable income because family trust distribution tax has been paid
- tax-exempt distributions from pooled development funds.
Non-residential real property
Non-residential real property includes land and buildings that are used for commercial or business purposes. This includes premises that are used for both business and residential purposes.
Permanent incapacity benefit
A permanent incapacity benefit is a lump sum benefit payment or income stream benefit payments paid by the SMSF to a member who is unlikely, due to ill health (physical or mental) to ever engage in gainful employment of the type for which they are reasonably qualified by education, training or experience and their condition has been certified by at least two medical practitioners.
For more information, see Conditions of release.
Pooled superannuation trusts
A pooled superannuation trust (PST) is a resident unit trust regulated by the Australian Prudential Regulation Authority (APRA). A PST is used for investing assets of a number of super funds or approved deposit funds, other PSTs and certain other specified entities.
Related party
Related parties of an SMSF are:
- all members of the SMSF and their associates
- all standard employer-sponsors of the SMSF and their associates.
Associates of a member of the SMSF include:
- every other member of the SMSF
- relatives of any member of the SMSF
- business partners of any member of the SMSF
- companies and trustees of trusts that any member of the SMSF controls (either alone or with their other associates).
A standard employer-sponsor is an employer who contributes to the SMSF for the benefit of a member, under an arrangement between the employer and the trustee of the SMSF.
Associates of a standard employer-sponsor include:
- business partners
- companies or trustees of trusts that the employer controls (either alone or with their other associates)
- companies and trustees of trusts that control the employer.
Release authority payment
A release authority payment is a lump sum payment to the member, or to us on the member’s behalf, in response to a release authority for excess contributions tax or Division 293 tax.
For more information, see Release authorities – your obligations.
Residential real property
Residential real property means premises which are lawfully
- occupied as a place of residence, or
- suitable for occupation as a place of residence.
If the premises are suitable as a place of residence but are used for commercial or business purposes, it is non-residential real property.
Self-managed superannuation fund (SMSF)
SMSFs are entities used for providing for individuals' retirement. Members of an SMSF are its trustees or, if the SMSF has a company trustee, are the directors of the company. This means the members of the SMSF run it for their benefit.
Generally your super fund with more than one member is an SMSF if:
- it has two to four members
- no member of the fund is an employee of another member of the fund unless they are related
- each member of the fund is a trustee and each trustee is a member of the fund, and
- no trustee of the fund receives any remuneration for their services as a trustee of the fund.
Alternatively, your super fund is an SMSF if it has a company as a trustee (known as a corporate trustee) and:
- the fund has two to four members
- each member of the fund is a director of the company and each director of the company is a member of the fund
- no member of the fund is an employee of another member of the fund unless they are related, and
- no remuneration is received by either the trustee company or a director of the company for services to the SMSF.
Your super fund is an SMSF if it has only one member and:
- the trustee of the fund is either
- the member of the fund and a second person who is either a relative of the member or is not the member’s employer, or
- a company where
- the member is the sole director of the company, or
- the member is one of two directors of the company and the second director is a relative of the member or is not the member’s employer
and
- no remuneration is received by either the trustee (individual or company) or a director of the company for services to the fund.
Severe financial hardship benefit
A severe financial hardship benefit is a super lump sum benefit paid to a member because:
- they have received Commonwealth income support benefits continuously for 26 weeks, and
- they were unable to meet reasonable and immediate family living expenses.
For more information, see Conditions of release.
SMSF supervisory levy
SMSFs pay an annual supervisory levy to us. It is currently $259. The supervisory levy to be paid with the SMSF annual return 2018 is for 2018–19.
For more information, see SMSF supervisory levy.
Spouse
A spouse of a member (at the relevant time) includes another person (of any sex):
- with whom the member is in a relationship that is registered under a prescribed State or Territory law, or
- who lives with the member on a genuine domestic basis in a relationship as a couple although not legally married to the member.
Retirement phase superannuation income stream benefit
A retirement phase superannuation income stream benefit is a superannuation income stream benefit paid from a superannuation income stream that is in retirement phase. A superannuation income stream is in retirement phase if a superannuation income stream benefit is payable from it but it does not include:
- a transition to retirement income stream (TRIS) unless the recipient is 65 or older, or has notified the SMSF they have met a condition of release with a nil cashing restriction (retirement, terminal medical condition or permanent incapacity), or
- the superannuation income stream is specified in a commutation authority issued by the Commissioner and the SMSF has not complied with the authority
A superannuation income stream is also in retirement phase if it is a deferred superannuation income stream where the intended recipient has met a condition of release with a nil cashing restriction (retirement, terminal medical condition, permanent incapacity or attained age 65).
Taxation of financial arrangements (TOFA)
The TOFA rules apply to an SMSF where the value of the SMSF’s assets is $100 million or more. For the purposes of this test:
- work out the value of the SMSF’s assets at the end of the immediately preceding income year
- if the SMSF came into existence during the current income year, work out the value of its assets at the end of this income year.
Once the TOFA rules apply to an SMSF, they will continue to apply to that SMSF even if the value of its assets later falls below $100 million.
An SMSF that does not meet these requirements can elect to have the TOFA rules apply to it.
The TOFA rules generally provide for:
- methods of taking into account gains and losses from financial arrangements, being
- accruals
- realisation
- fair value
- foreign exchange retranslation
- hedging
- reliance on financial reports
- balancing adjustment
- the time at which the gains and losses from financial arrangements will be brought to account.
If the TOFA rules apply to the SMSF then it needs to:
- use the TOFA rules to calculate the amount it enters at some questions in Section B: Income and Section C: Deductions and other deductible expenses
- complete Section I: Taxation of financial arrangements.
For more information, see Guide to the taxation of financial arrangements (TOFA).
Temporary incapacity benefits
Temporary incapacity benefits are amounts paid as an income stream to a member because they temporarily ceased gainful employment due to physical or mental ill health, but were not permanently incapacitated.
For more information, see Conditions of release.
Terminal medical condition benefits
Terminal medical condition benefits are super benefits paid to a member with a terminal medical condition where two registered medical practitioners have certified that the member suffers from an illness, or has incurred an injury, that is likely to result in the member’s death within 24 months of the date of certification.
For more information, see Conditions of release.
Transition to retirement income stream
A transition to retirement income stream is a super income stream paid to a member who has reached their preservation age but is still working and has converted part or all of their accumulated benefits to an income stream.
For more information, see SMSF – transition to retirement income streams.
For use by self-managed superannuation funds to assist in completion of 2018 annual return. NAT 71606-6.2018