Self Managed Superannuation Funds (SMSF)

What is a Self Managed Super Fund or SMSF?

A Self Managed Superannuation Fund in simple terms is a favourably taxed structure, in which you can invest for retirement.

SMSF’s are small superannuation funds established for 1 to 4 members. Generally all members of a SMSF are required to be trustees of the fund and all trustees are required to be members. The members are individuals, families and business partners that grow and manage their own wealth.

SMSF’s cater for superannuation savings and retirement benefits in a similar manner to other larger superannuation funds. Accordingly they can;

• Accept contributions and rollovers
  
• Provide for the investment and maintenance of superannuation monies
  
• Provide insurance cover; and
  
• Provide benefits in the form of lump sum and/or pension benefits.
  

In addition SMSF’s have access to a broader range of investment opportunities, including the ability to invest up to 100% of fund assets in business real property.

Why SMSF?

Managing your own superannuation does not suit everyone – but if you’re one of an increasing number of Australians wanting to take control of your retirement planning, a self managed superannuation fund (SMSF) may just be the answer.

Acknowledged as one of the most tax effective structures for wealth creation, SMSFs offer a number of key benefits, including:

• Control - over the structure and all decisions made by the fund.
• Flexibility - of investment choice, timing of contributions and access to income stream (pension) payments.
• Tax Effectiveness - the opportunity to reduced tax rates on investment income and capital gains through, for example, the use of franking credits and the offsetting of capital losses.
• Estate Planning - your SMSF can be structured to provide effective estate planning.
• Asset Ownership - ability to transfer personal shares and business real property into the fund.
• Asset Protection - from bankruptcy and other legal claims (up to a limit).

Who Can Have a SMSF? 

SMSFs are typically attractive to people with over $100,000 in superannuation assets and require the additional choice, flexibility and control offered by SMSF.

There are certain regulatory responsibilities placed on SMSF, therefore when setting up a fund it is important to consider various issues including:

Who will manage and administer the Fund?

• Will there be sufficient funds in the SMSF to make the administrative costs worthwhile?
  
• Will the other trustees of the fund be suitable co-investors?
  

Just about anybody is eligible to run their own fund. You could be:

• An employee
  
• Self-employed
  
• A Director of a private Company 
  
• About to receive a retirement or redundancy package 
  
• Already retired with money in a roll over fund; or
  
• Retired and already receiving a pension from a private superannuation plan

However, you must already have money in superannuation and/or be able to make contributions to your superannuation fund.

Some people cannot be members of a self managed fund because they cannot be a trustee or a Director of a trustee Company. This applies if you are:

• Currently insolvent 
  
• Convicted of a dishonest act 
  
• Disqualified by the regulator

Who Is Involved in a SMSF?

SMSF’s are made up of Members and Trustees.

Members of a SMSF are also the trustees of the fund.

The trustees control how contributions are invested and how benefits are paid (within the confinements of the law). SMSFs must comply with the following restrictions:

• Must have no more than four members.
  
• Every member must be a trustee of the fund.
  
• If a company is appointed as Trustee of the fund, then each member of the fund must be a Director of the Company.
  
• No member of the fund can be an employee of another member of the fund, unless the members concerned are relatives.
  
• Trustees of the fund must not receive any remuneration for their services as trustee.
  

If there is only one member within the superannuation fund and the member wishes to act as the Trustee, then another non-member (usually a trusted person i.e. accountant/solicitor) Trustee needs to appointed so that in the event of death of the member, the funds assets are accessible.

What Can The Fund Invest In?

There is a wide range of investments that a fund can invest in including:

• Listed Shares
  
• Bonds
  
• Cash
  
• Fixed Interest
  
• Managed Investments
  
• Private Unit Trusts
  
• Direct Property and;
  
• Listed and/or Unlisted Property Trusts
  

It is important to understand that there are certain regulatory limitations placed on SMSF and the investments held within the fund. Restrictions include the inability to lend funds to members or their relatives, the inability to borrow money for investment and/or to provide the assets of the fund as security for personal borrowing.

Trustee Responsibilities

Trustees of the SMSF have responsibility for all aspects of running the fund, including:

•  Maintaining all financial records of the fund
  
•  Establishing and implementing the fund’s investment strategy
  
•  Complying with all regulations under the SIS Act
  
•  Lodging tax and regulatory returns
  
•  Keeping up to date with changes in the legislation to ensure the fund remains complaint
  

The penalties for not complying with all the laws and regulations can be severe. These include applying higher taxes on the fund, freezing the assets of the fund and criminal prosecution of the trustees.

 Please seek professional advice in relation to the investment of funds within your SMSF.