Question 1

A SMSF member/trustee cannot be a(n):

Accepted Answer

A SMSF (Self-Managed Super Fund) member/trustee cannot be an employee of another fund member unless they are related. This rule is designed to ensure that the fund is genuinely self-managed and that the relationships between members do not conflict with this objective.

Question 2

SMSFs are regulated by the:

Accepted Answer

SMSFs are regulated by the Australian Taxation Office (ATO) which is responsible for ensuring compliance with laws and regulations governing SMSFs. APRA regulates other types of superannuation funds, while ASIC regulates financial markets and financial services.

Question 3

Actions by trustees for a particular offence that are held to be non-compliant with the superannuation rules can result in the trustees being exposed to:

Accepted Answer

Trustees can face both civil penalties and criminal charges for non-compliance with superannuation rules, with civil penalties up to $220,000 and criminal penalties up to 5 years in prison.

Question 4

SMSF trustees cannot:

Accepted Answer

SMSF trustees are prohibited from lending money or providing financial assistance to their fund's members or their relatives, ensuring the fund's assets are protected and used solely for retirement benefits.

Question 5

Commercial terms regarding property acquisitions for a SMSF include:

Accepted Answer

Acquiring assets on an arms-length basis is a key requirement for SMSFs to ensure that they are investing in assets at fair market value and not engaging in prohibited transactions. Paying rentals at above or below market rates would not be advisable as it could result in non-arm's length income and attract tax penalties.

Question 6

Real returns from an investment portfolio:

Accepted Answer

Real returns from an investment portfolio exclude the effects of inflation in the quoted return. This means that the return on the investment is adjusted for inflation to provide a more accurate picture of the actual return earned. For example, if an investment earned a 6% return but inflation was 2%, the real return would be 4% (6% - 2% = 4%).

Question 7

The purchase of an asset by a SMSF from a member will be regarded as being on an arm's length basis when it is purchased at:

Accepted Answer

It is important for all transactions involving a SMSF and its members to be conducted on an arm's length basis, which means that the transaction must be conducted in the same way as if it were between two parties who are not related. In the context of purchasing an asset, this means that the asset should be purchased at its market value, which is the amount that a willing buyer and a willing seller would agree to in an open and competitive market. Purchasing the asset for more or less than the market value would not be regarded as an arm's length transaction. Therefore, the best choice is (C) market value.

Question 8

In comparison to large superannuation funds, available research shows that SMSF members tend to:

Accepted Answer

Available research generally indicates that SMSF (Self-Managed Super Fund) members tend to have larger superannuation balances and are older compared to members of larger superannuation funds. This is because managing an SMSF requires a certain level of financial literacy and a substantial amount of superannuation to make the setup and ongoing costs worthwhile.

Question 9

In-specie member superannuation contributions to a SMSF cannot include:

Accepted Answer

In-specie contributions to a Self-Managed Super Fund (SMSF) can include real business property, widely held managed funds, and non-concessional contributions. Therefore, none of the options listed are excluded from being contributed in-specie to an SMSF.

Question 10

When a superannuation fund member rolls their accumulated superannuation benefit from a large superannuation fund to a SMSF what percentage of their existing life insurance cover can they transfer between the funds?

Accepted Answer

There is no provision for transferring life insurance cover from a large superannuation fund to a SMSF. This means that the member will need to consider getting new life insurance cover within the SMSF if they wish to remain insured.

Question 11

Jointly owned assets where a SMSF is one of the parties is recommended to be legally held in which form?

Accepted Answer

Jointly owned assets where a SMSF is one of the parties should be held as tenants in common rather than joint tenants, as it provides greater flexibility in estate planning and distribution of assets upon death.

Question 12

A SMSF auditor must be:

Accepted Answer

A SMSF auditor must be either a registered company auditor or a member of a designated organization. Therefore, both options (a) and (b) are correct. There are no rules specifying a maximum period for which an SMSF auditor can be appointed.

Question 13

An APRA approved trustee can be appointed to run a:

Accepted Answer

A small APRA fund (SAF) can have an APRA approved trustee, unlike a Self-Managed Super Fund (SMSF) which is regulated by the Australian Taxation Office (ATO) and cannot have an APRA approved trustee.

Question 14

The small business retirement exemption:

Accepted Answer

The answer of The small business retirement exemption:
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Question 15

SMSFs:

Accepted Answer

SMSFs (Self-Managed Super Funds) do not have access to the Superannuation Complaints Tribunal, and they are not covered by a government and industry compensation scheme for losses due to fraudulent behavior of trustees. These features differentiate SMSFs from other superannuation funds.

Question 16

A SMSF will be more readily able to meet its liquidity requirements if it invests in which one of the following investment portfolio allocations?

Accepted Answer

A portfolio allocation with a higher proportion of income assets (such as bonds or cash) will generally provide greater liquidity and stability compared to a growth-only or heavily skewed growth allocation. This will allow the SMSF to meet its liquidity requirements more readily, especially in times of market volatility or economic uncertainty. Option D, with 25% growth assets and 75% income assets, therefore represents the best choice for meeting liquidity requirements.

Question 17

Business real property for a SMSF:

Accepted Answer

Business real property can indeed be acquired from a related party if it's on commercial terms and it won't be considered an in-house asset. It can include property used for primary production and there's no legal limit on the proportion of the SMSF's total assets that business real property can comprise.

Question 18

When a SMSF undertakes borrowings to acquire an investment the lenders recourse against the SMSF is limited to:

Accepted Answer

When an SMSF undertakes borrowings to acquire an investment, the lender's recourse is limited to the asset subject to the borrowing. This means that if the SMSF defaults on the loan, the lender can only seek to recover the asset that was purchased with the borrowed funds. The lender cannot seek recourse against any other assets held by the SMSF, including real property or other investments. Therefore, option A is the correct choice. Option B is incorrect as the lender's recourse is not limited to real property held by the SMSF. Option C is also incorrect as both options A and B are not correct. Option D is irrelevant as there is no mention of a 50% limit on the lender's recourse.

Question 19

The residency status of a SMSF will not be jeopardised where the trustees:

Accepted Answer

Under the Superannuation Industry (Supervision) Act 1993, a SMSF is considered an Australian resident fund unless the central management and control of the fund is located outside of Australia or the active member test is failed. However, if the trustees of the SMSF travel overseas for more than two years, the SMSF can be considered a non-resident fund, which can lead to tax consequences. To avoid this, the trustees can be absent from Australia for up to two years if they return for at least 28 days in each year or can be absent for up to five years if certain conditions are met. Therefore, option C is the best choice as it correctly states that the trustees can travel overseas for no more than 24 months before returning for at least 28 days to maintain the SMSF's resident status.

Question 20

A SMSF member moving their accumulated fund balance of their member account from the accumulation phase to the pension phase will:

Accepted Answer

- A) is correct as members cannot make contributions to their pension account.
- B) is incorrect as unrealized capital gains tax liability is not removed but continues to accrue in the pension phase.
- C) is correct as members are required to undertake a minimum drawdown each year from their pension account.

Quiz 12: Self-Managed Superannuation Funds

A SMSF member/trustee cannot be a(n) :