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Glossary of SMSF terms

Bare trust

or Custody Trust. See below.

Beneficiary

means a person immediately and absolutely entitled to a benefit under the trust deed in respect of a member. It does not include a member except where that member is immediately and absolutely entitled to a benefit under the deed in respect of another member.

Custodian

means the trustee of a Custody Trust. The custodian can be one or more individuals or a company. Most banks usually require the custodian to be a company.

Custody Trust

is a simple trust arrangement (a different trust from the SMSF itself) required by superannuation law under which a custodian holds assets purchased by an SMSF. This trust arrangement is established by the Custody Trust deed. The Custody Trust commences when the custodian named in the Custody Trust deed takes title to the asset purchased with the loan money.

Employer sponsor

is the term given in the Cleardocs trust deed to refer to an employer of any member who establishes the SMSF. In this case, the SMSF will be an employer-sponsored SMSF. Primarily this means that, although the trustee is responsible for running the SMSF, certain administrative decisions made by the trustee will require the consent of the employer.

Limited recourse borrowing

refers to an arrangement under superannuation law where an SMSF borrows money to purchase an asset to be held in a separate trust. The lender's rights are limited to the asset acquired with the borrowed funds and any guarantee with no recourse to other assets owned by the SMSF.

Member

means an individual who has contributions made for them or receives benefits from the fund.

Person or entity establishing the fund

can be a company who is not the corporate trustee of the fund or an individual including any of the fund's members. The person or entity who establishes the fund is party to the SMSF deed and executes it with the trustee.

Participating employer

means an employer permitted by the trustee to make contributions in respect of a member or an eligible person who wishes to become a member.

Principal

is the term given in the trust deed to a member of the fund who establishes the SMSF. The role of principal is merely a procedural role to get the SMSF up and running: that person has no further obligations operating the SMSF apart from those obligations it has a member, trustee or director of the trustee.

Product Disclosure Statement

is a document containing a summary of the important provisions of the fund's deed and the effects of those provisions on members. It is a document required under the Corporations Act.

Reversionary beneficiary

means:

  • the person to whom the pension must be paid after the member dies; or
  • any person to whom the pension must be paid on the death of another under a pension payment agreement.
SIS Act

means the Superannuation Industry (Supervision) Act 1993 (Cth).

SIS Regulations

means the Superannuation Industry (Supervision) Regulations 1994 (Cth).

Special purpose company

means a company that has been created for a specific purpose stated in its constitution or internal operating rules. Generally, special purpose companies are either superannuation trustee companies, a home unit company or not-for-profit company. They qualify for a lower ASIC annual review fee.

Trust Deed

means the document containing the governing rules of the superannuation fund.

Trustee

means the individuals or company who are responsible for all decisions made in relation to the fund including its investments and its dealings with other people and service providers. The trustee has a position of trust or responsibility to exercise due care, skill and diligence in its duties.

Vesting date

is the date defined in the trust deed when the trust ends. The standard vesting date is 80 years from the commencement of the trust.

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