SMSF trustee duties under section 52B SIS Act

Covenants implied into every SMSF trust deed

Section 52B of the Superannuation Industry (Supervision) Act 1993 imposes specific obligations on SMSF trustees. These obligations are in the form of covenants that are implied into the governing rules of every SMSF. This means these covenants are legally binding, irrespective of any provisions contained within the SMSF trust deed itself. Trustees must ensure their actions align with these implied requirements.

The duties imposed include a requirement to act honestly in all matters relating to the fund [SMSF sole purpose test - section 62]. Furthermore, trustees are obligated to exercise the same level of care, skill and diligence that a reasonable and prudent superannuation trustee would apply. This standard of care is crucial for ensuring the fund is managed responsibly.

Finally, trustees must perform their duties and exercise their powers in the best financial interests of the fund’s beneficiaries and maintain a clear separation between the fund’s assets and those of the trustees and any employer-sponsors.

Investment strategy obligation

Trustees are required to formulate, review regularly, and give effect to an investment strategy for the fund (APRA SPS 530 investment governance). This obligation is outlined in section 52B(2)(f) of the *Superannuation Industry (Supervision) Act 1993*. Regulation 4.09 of the *Superannuation Industry (Supervision) Regulations 1994* details the matters the strategy must consider, including risk and return, diversification, liquidity, the ability to discharge liabilities, and whether to hold insurance for members.

The ATO interprets ‘review regularly’ to generally mean at least annually, and also when significant events occur. Examples of such events include the addition of a new member, a large rollover, or a major asset change. The investment strategy should be a considered document, rather than a superficial statement. The ATO has indicated it will focus on enforcement actions against strategies that lack analysis, such as simply stating a ‘high growth’ objective.

Since 1 July 2019, trustees must specifically consider insurance for members as part of the investment strategy.

Asset separation and record-keeping

Fund assets must be held in the trustee’s capacity for the fund and kept clearly distinguishable from personal or business assets. To assist with this, bank accounts, share registries and property titles should generally be held in the name of the trustee ‘as trustee for’ the fund. Failure to maintain this separation is a frequent area of concern identified by approved auditors. SuperStream rollovers and ESA for SMSFs

Trustees are required to maintain comprehensive records. Accounting records must be retained for a minimum of 5 years (s 35A SIS Act), while minutes of meetings and trustee declarations must be kept for at least 10 years (s 103, s 104A). These records are essential for demonstrating compliance and accountability.

Upon appointment, each individual trustee or director of a corporate trustee must sign the ATO Trustee Declaration within 21 days (s 104A). This declaration confirms their understanding of their duties and obligations as a trustee.

Consequences of breaching s 52B

A breach of the covenants outlined in s 52B of the *Superannuation Industry (Supervision) Act 1993* (SIS Act) provides a statutory right for beneficiaries to pursue legal action for any loss or damage they incur under s 55(3) of the SIS Act. This means a trustee can be held liable for failing to uphold the duties imposed by s 52B.

The Australian Taxation Office (ATO) has the power to apply administrative penalties for breaches of s 52B, as outlined in s 166 of the SIS Act. An example of this is a penalty for failing to prepare an investment strategy. Furthermore, trustees may face disqualification under s 126A of the SIS Act. Disqualification renders the SMSF non-complying, potentially exposing the fund’s assets and income to tax at a rate of 45%. SMSF sole purpose test - section 62 is a related area of trustee responsibility.

Where reporting tests are met, approved SMSF auditors are obligated to report contraventions of s 52B to the ATO using an Auditor Contravention Report. The ATO’s responses to initial breaches of s 52B often involve issuing rectification directions (s 159) and education directions (s 160) to the trustee.