SMSF Management: What Trustees Can and Can’t Charge Fees For

Self-managed super funds (SMSFs) provide individuals with greater control and flexibility over their retirement savings, allowing them to make investment decisions and manage certain aspects of their fund operations. However, this autonomy comes with complexities, especially when it comes to determining which activities trustees can charge fees for, particularly when it involves related-party transactions or “mates rates.” Understanding the boundaries between trustee duties and professional services is essential to avoid compliance issues, particularly those surrounding non-arm’s length expenditure (NALE) and income (NALI) rules.

What Are SMSF Trustee Duties?

As a trustee of an SMSF, your primary responsibility is to ensure that the fund is managed in accordance with the Superannuation Industry (Supervision) Act 1993 (SIS Act) and other relevant regulations. Trustee duties include:

1. Managing Investments: Trustees are responsible for overseeing the SMSF’s investment strategy, including decisions on asset allocation. This is a core trustee duty and cannot be charged as a fee.
2. Record-Keeping: Proper documentation, including financial records, meeting minutes, and tax returns, must be maintained. Managing these tasks yourself is part of your obligations and cannot be billed to the SMSF.
3. Fund Administration: Tasks such as ensuring regulatory compliance, organising meetings, and lodging annual returns are part of the trustee role and cannot attract a fee.
4. Lodging Reports and Returns: Trustees must file an annual return for the fund, which includes income tax reporting and compliance details. While you can handle this on your own, many trustees choose to hire an accountant or professional SMSF administrator.

What SMSF Trustees Can Charge a Fee For

While trustees cannot charge for performing basic duties, there are specific situations in which fees may be charged for services beyond standard trustee obligations:

1. Professional Services: If you are a qualified professional (e.g., accountant, financial planner, or lawyer), you may charge fees for providing professional services to the SMSF. This includes preparing financial statements, providing legal advice, or managing complex investment transactions. However, these services must be provided at commercial rates and in line with industry standards to avoid triggering non-arm’s length income (NALI) rules.
2. Specialist Tasks: Trustees may outsource specialist services, such as investment management or legal work, and the providers of these services can charge for their services. These transactions must be conducted at arm’s length, with proper documentation in place to ensure compliance.

What SMSF Trustees Cannot Charge For

Trustees are prohibited from charging for tasks that fall under their core duties, including:

• General Fund Administration: Tasks like paying bills, organising meetings, and maintaining records cannot be billed to the SMSF.
• Management of Fund Investments: While trustees make investment decisions, they cannot charge for their time or expertise in managing the fund’s investments.
• Compliance Monitoring: Ensuring the fund remains compliant with regulations is a fundamental trustee responsibility and cannot be monetized.
• Day-to-Day Operations: Regular administrative tasks associated with managing the SMSF must be performed without remuneration.

The Risks of Non-Arm’s Length Expenditure (NALE)

Non-arm’s length expenditure (NALE) and income (NALI) rules are in place to prevent trustees from gaining an unfair tax advantage through discounted or subsidized transactions. If trustees provide services to the SMSF at below-market rates or offer “mates rates,” they risk triggering these rules.

If an SMSF is found to have incurred NALE, the income generated from that expenditure will be taxed at the highest marginal rate (45%) rather than the concessional tax rates that apply to superannuation funds. This can result in significant financial penalties and undermine the value of the fund.

How to Avoid NALE Breaches

1. Market Rate for Services: If providing professional services, ensure that the fees are consistent with what you would charge any other client.
2. Documentation: Always keep thorough records, including service agreements and invoices, that demonstrate the terms of your services are in line with industry standards.
3. Seek Professional Advice: When in doubt, consult SMSF specialists or financial advisors to ensure your fund remains compliant with the relevant rules.

Conclusion

Managing an SMSF offers significant control over your retirement savings, but it also comes with important responsibilities. Trustees must carefully distinguish between their duties as trustees and the provision of professional services. Charging fees for tasks that are part of trustee obligations or offering discounted services can result in non-arm’s length penalties, which could have a significant financial impact on the fund. By following the arm’s-length principles and seeking professional advice when necessary, trustees can effectively manage their SMSF while ensuring compliance with all regulations. This approach will help protect your retirement savings and avoid costly mistakes.

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How can we help?

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