Can I pay myself for managing my SMSF?
Generally, no but there are some limited circumstances in which you can be paid for managing your SMSF.
Why can’t I pay myself?
The Superannuation Industry (Supervision) Act 1993, Section 17A (g) prohibit a SMSF trustee from receiving any payment for services or duties performed because they are undertaking those duties in their capacity as an individual trustee, or a director of a corporate trustee.
It is important to note that the prohibition relates to individuals and not to an entity such as a company or a trust.
Services to manage a SMSF can include:
- accepting contributions and paying member benefits
- arranging for or preparing financial statements and the fund’s annual SMSF Tax Return
- appointing an auditor and arranging for the annual SMSF Audit
- maintaining fund records
- repairing and maintaining fund assets
- administration duties which can include collecting rent, keeping a cashbook, banking deposits or paying fund expenses
- establishing, reviewing and updating the fund’s investment strategy
- operating the fund’s bank account and making investment decisions
- ensuring obligations are met in relation to tax matters, ASIC and SIS laws and regulations
Exception to prohibition of paying myself for managing my SMSF
Whilst a SMSF trustee is unable to receive remuneration for trustee specific services they can receive remuneration for services performed which are considered to be non-trustee duties.
To ascertain when non-trustee duties are being performed it is crucial to determine if the individual is undertaking an activity which is carried out in their capacity as trustee of an SMSF or whether they are acting in a different capacity.
Non-trustee duties undertaken by an individual trustee or a director can be remunerated if:
- duties or services are not performed in the capacity of a trustee or a director
- the trustee/director is appropriately qualified and holds the required licences to undertake those specific duties
- the individual performs the services in their ordinary course of business carried on by the trustee/director which are also performed on a similar basis to the public
- the remuneration for the service is at arm’s length
Hint – a trustee is able to contract out administration duties such as preparation of financial statements and preparation of the SMSF’s annual tax return.
Other factors which indicate the management activities are being carried out in the capacity of an individual vs in the capacity as a SMSF trustee include:
- charging a SMSF for performing services
- significant and material use of equipment such as computers and software used in the individual’s or employer’s business – the ATO ignore minor, infrequent and irregular use
- an individual can only perform the management services as a result of them or their employer holding the relevant qualifications and/or licences
- indemnity insurance policy covers the management activity being undertaken relating to their business, profession or employer’s business i.e. professional indemnity insurance for accountants or financial advisors
Example 1
Todd is a sole trader providing accounting services to the public. He is also a registered tax agent and is a chartered accountant. Todd’s SMSF can engage him to prepare the annual financial statements and prepare and lodge the fund’s annual tax return. Todd must charge the fund at the rates he normally charges his clients and prepare and execute a formal contract with commercial terms and conditions.
Todd is considered to be acting in his individual capacity as the services have been undertaken as part of his business which he is appropriately qualified for. The remuneration charged from his practice to his SMSF is in line with what he charges the public.
Todd can be remunerated for the duties performed.
Example 22.1 Sue prepares the financial statements and the tax return for her SMSF. She is employed by an unrelated company, ABC chartered accountants. She accesses the super software at her employer’s office to prepare the accounts. She does this in her private time. Sue lodge’s the fund’s annual tax return under the tax registration of ABC.
Under example 2.1 Sue is considered to be acting in her individual capacity due to the use of her employer’s equipment and accessing her employer’s tax agent’s license. ABC would need to charge an appropriate arm’s length fee for the use of its software licence and tax agent service. It is a little bit unclear if Sue can charge for her services as she does not carry on an accounting business to the public and the ATO is likely to consider she is acting in her individual capacity. The non arm’s length expense (NALE) provisions may apply. It would be best to apply to the ATO for a private ruling under these circumstances.
2.2 Sue used her own computer, at home, and her SMSF has a subscription to super software which enabled her to complete the fund’s financial statements and lodge the fund’s tax return directly from the software. The fund does not use a tax agent.
Under example 2.2 Sue does not carry on an accounting business and is not a tax agent. Sue is considered to be acting in her capacity as a trustee. Sue is unable to be remunerated for the duties performed.