Self-Managed Superannuation Funds and Trustee Obligations: When can I pay retirement benefits?

In our recent article on WZWK and Commissioner of Taxation,[1] we discussed the dangers facing self-managed superannuation fund (SMSF) trustees who act improperly, including potential tax penalties and disqualification.

This raises the question: under what circumstances can a SMSF trustee make a payment of benefits? We help you navigate the highly regulated and daunting legal landscape of superannuation law below.

What is a SMSF and who acts as a trustee?

A SMSF is a private superannuation fund. It is a form of trust which allows you to privately manage your funds or assets for retirement.

Like any trust, a SMSF is run by its trustees, for the purpose of providing future retirement benefits for its members. The trustees are responsible for managing the investment and distribution decisions of the fund, and are under a fiduciary obligation to act in the best interests of the members.

A common set up is where partners or spouses are the two trustees and members of the SMSF, or there might be a corporate trustee (i.e. a company registered for this purpose) where individuals act as directors and shareholders of the company. A SMSF can have six members at any one time, and these are often family members.

While SMSF’s are an attractive superannuation options for the independence and flexibility they provide, they also come with financial and legal risks. The trustees must ensure that the activity of the fund complies with superannuation and taxation law.

When can a trustee pay SMSF benefits?

Benefits can only be paid to a member of a SMSF where they satisfy one of the conditions of release.[2] These conditions are legislated under superannuation law. However, it is possible that the rules governing your SMSF may impose stricter requirements before benefits will be payable.

Accordingly, before releasing any funds, a trustee must be satisfied that the member has met one of the conditions and that the rules of the relevant SMSF, which are typically set out in the trust deed, allow the payment. Some examples of conditions of release for a member to be eligible for superannuation benefits in this context include –

a) Attaining the age of 65 years

At this age, even if a member has not retired, they will become able to access their SMSF benefits.

b) Ceasing employment on/after attaining the age of 60 years

At this age, members who cease employment may cash accumulated benefits.

c) Attaining the preservation age and transition to retirement

If the SMSF trust deed permits, a transition to retirement income stream may be paid to members who have reached their preservation age (this age varies but is often between 55-60) but want to continue to work. This will take the form of an account-based pension. To find out more visit the ATO website here.

Payment from a SMSF can also be made on the death of a member. That is, where a member has died, the SMSF death benefit is paid to a death benefit beneficiary, which is often a spouse or partner, children or the member’s estate.

Record Keeping

Accessing super benefits early is fraught with danger. SMSF trustees must ensure that:

1. Compliance with requirements for a particular condition of release are met;
2. Adequate records are kept evidencing the requirements have been observed; and
3. Where there are multiple trustees, all other trustees must consent to the distribution, with appropriate documentation (e.g. in the trustee meeting minutes).

Failure to do this may bear serious consequences, such as if the SMSF is audited. If the ATO is not satisfied that the trustee/s have acted as they should, this may lead to a finding that superannuation has been released illegally and tax penalties may apply. It may also lead to the trustee/s being disqualified from continuing in their role.

We’re here to help

At Chamberlains Law Firm, the experts in our Private Wealth Law  team can assist you. We specialise in superannuation law and can provide personalised advice on SMSF issues and compliance.

We can assist with the establishment of a SMSF in consultation with your accountant or financial advisor, together with ensuring documentation remains up-to-date and compliant in light of changes in the law. We can provide tailored advice to trustees regarding their duties and obligations, minimising death benefit taxes, implementing succession strategies for estate planning, reviewing trust deeds and more.

If you require our assistance, please reach out to our team.

[1] (Taxation) [2023] AATA 872 (26 April 2023).

[2] Conditions of release | Australian Taxation Office (ato.gov.au)