ATO Obligations for SMSF Trustees

New government regulations for SMSF trustees

The government's Cooper Review into superannuation found that only 13% of self-managed super funds currently hold any form of life insurance.

The latest figures from the ATO put the number of SMSF's currently operated in Australia at 475,000, with an average of 2 members per fund. That's more than 900,000 members belonging to an SMSF in Australia, however it seems less than 120,000 of those are insured.

These numbers show just how many Australians could benefit from reviewing the potential savings and taxation advantages of owning life insurance inside their SMSF.

New Obligations of SMSF Trustee's

The government recently introduced new Strong Super regulations, which include new obligations on SMSF Trustees from 7th August 2012.

Notable among these changes was a requirement for Trustee's to "regularly review the investment strategy of the fund" to ensure that the strategy "adequately reflects changes to circumstances affecting the fund and its member". What this means is that the government now mandates that the investment strategy of an SMSF needs to include a consideration of the appropriateness of life insurance for fund members.

The strategy, including life insurance considerations, needs to be documented and kept for compliance. This can be as simple as recording the process taken in considering life insurance, and the reasons for that decision, as part of meeting minutes or as part of a strategy document. 'Regular', in the context of frequency of reviews, is widely considered to mean at least annually.

SMSF Trustees are not required by law to take out life insurance cover for members, but they do need to consider if it is appropriate. Often members will maintain life insurance outside the SMSF, however there may be price and taxation benefits to holding the insurance inside the fund.

Typical insurance considerations should include the type of cover—such as Life, TPD, and Income protection—as well as the level and ownership structure of the insurance.

SMSF Investment Strategy for Life Insurance Templates

To assist SMSF Trustees meet their obligations to the ATO, we have put together two templates which are free to download and can be used to document the life insurance investment strategy for an SMSF.

Download Templates Microsoft Word, zipped, 177KB

Download each document separately:

SMSF Investment Strategy Template - Life Insurance Consideration (pdf)

SMSF Meeting minutes to adopt investment strategy (pdf)