What is a Self-Managed Super Fund?
Self-Managed Super Funds, or SMSFs, work in much the same way as retail or industry super funds. The main difference is, you make all the decisions for the fund and you’re held responsible for complying with the super and tax laws. Superannuation is attractive because it receives favourable tax treatment, both when you are working and once you have retired. The government offers these tax savings to encourage you to build your super assets. Contributions and rollovers from various sources can be accepted by the fund, but you need to properly document these including the amount, type and breakdown of the components, and promptly allocate them to a members’ account.
SMSF Requirements
In order for a super fund to meet the definition of being an SMSF the following requirements must typically be met:
Must have 4 or less members
All members must be a trustee (see below)
No members can be employees of unrelated other members
The fund must be an Australian Superannuation fund.
Individual vs Corporate Trustee
You can choose one the following structures for your fund:
up to four individual trustees
a corporate trustee (a company acting as trustee for the fund) The main differences are as follows;
Individual Trustees |
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Corporate Trustee |
Member and trustee requirements |
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Member and trustee requirements |
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Max four members Each member of fund, must be a trustee |
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Max four members Each member of fund, must be a director of the company |
Cost |
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Cost |
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Ongoing admin requirements & establishment costs are less as there are no ASIC fees. A trustee cannot be paid for their duties or services as a trustee. |
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ASIC Fee to register a company plus an annual fee. The corporate trustee, or directors of the corporate trustee cannot be paid for their duties or services as a trustee. |
Ownership of fund assets |
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Ownership of fund assets |
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If a trustee is removed or added, you must change the titles of the SMSF’ assets. This can be costly and time consuming. |
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When a person starts or stops being a member of the SMSF, they become or cease to be, a director of the corporate trustee. ASIC and ATO must be notified of the change but the corporate trustee doesn’t change so the title of the assets is unchanged. |
Succession |
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Succession |
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Not likely to continue to operate as usual when changes in trustees occur, unless an appropriate succession plan has been prepared. |
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A company continues in the event of a member’s death. Control of the SMSF and its assets are more certain in the event of death or incapacity of a member. |
Information taken from the ATO website, effective from 16 Jun 2015.
Benefits of an SMSF
Control
Diverse Investment Choice
In-Specie contributions
Transparency–Actual investment cost base
Potential Cost Benefits
Customised Estate Planning Whilst there are many advantages to having your own SMSF, there is a considerable amount of work involved which sees the need to appoint professionals to assist you. Other disadvantages include penalties for non-compliance, high cost for small balances, loss of access to Superannuation Complaints Tribunal and potential inability to fund anti-detriment payments.
Steps to establishing a SMSF
1. Appoint professionals to help in the establishment and ongoing maintenance of the fund.
2. Choose individual or a corporate trustee
3. Create the trust and trust deed
4. Appoint your trustees
5. Register your fund
6. Set up a bank account
7. Get an electronic service address – if necessary.
8. Prepare an exit strategy
Investment Strategy
Before you start making investments you must have an investment strategy. This sets out your fund’s investment objectives and specifies the types of investments your fund can make. Your investment strategy should be in writing and must:
Be reviewed regularly to ensure it continues to reflect the purpose and circumstances of your fund and its members; and
Consider whether to hold insurance cover for each member of your SMSF.
