Topdocs SMSF Technical - Understanding SIS Concepts

(a) Regulated Superannuation Fund

Whether a fund is established as a SMSF or not, all funds must be a "regulated superannuation fund" in order to receive concessional taxation treatment as a complying superannuation fund (see sections 42, 42A and section 45 of SIS).

A "regulated superannuation fund" is defined under section 19 of SIS.  It means a fund that complies with sections 19(2) and (3) of SIS and whose trustee has lodged an election with the regulator pursuant to sub-section 19(4) of SIS agreeing to be bound by SIS.

In order for a fund to be able to lodge an election under sub-section 19(4), the following two requirements must be satisfied: 

(i) the fund in question must have a trustee; and

(ii) the trust deed or governing rules of the fund must either require the trustee to be a "constitutional corporation" (ie. a trading or financial corporation), or provide that the sole or primary purpose of the fund is the provision of old-age pensions.

The second requirement was incorporated in order to give the Federal Government the necessary powers under the constitution to directly regulate the superannuation industry.  Under the constitution, the Federal Government is given power to regulate trading and financial corporations as well as the provision of old-age pensions.

The Topdocs trust deed caters for both corporate and individual trustees and meets both of these requirements (see Clauses 2.1, 14 and 37.4(b)).  The trust deed contains the necessary requirements specified under sub-sections 19(3) and (4) of SIS to facilitate the lodgement of an election form to enable the fund to become a regulated superannuation fund within the meaning of SIS.

The trust deed also includes provisions addressing the situation where the Trustee considers that it is not possible or reasonably practicable for the fund to continue to be an SMSF, or where the Members request in writing that the fund become another type of regulated superannuation fund (clause 2.3).

The trust deed also provides flexibility in the sense that it permits the payment of benefits in the form of a lump sum or income stream whether the fund has a corporate trustee or individual trustees, by providing a right to full commutation of pensions into lump sum benefits and visa versa. This means the nature of the trusteeship of the fund may be changed from individual to corporate, or vice versa, without difficulty under the trust deed.

Once an election under sub-section 19(4) of SIS is made, the fund in question becomes a regulated superannuation fund.  The election is irrevocable (see sub-section 19(5) of SIS).

(b) Non-Regulated Funds

A non-regulated fund is a fund that has never elected into the SIS regime.  Non-regulated funds are not eligible for taxation concessions because they cannot qualify to become complying funds (see section 42 of SIS).  Rollovers and benefit transfers from regulated funds to non-regulated funds are not permitted (see regulations 6.28 and 6.29 of the Superannuation Industry (Supervision) Regulations 1994 (SIS regulations)).

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Topdocs SMSF Technical – Understanding SIS Concepts