Everything you need to know about Self-Managed Super Funds
We’re going back to basics this week and looking at all things “SMSF.”
As the name suggests, a self-managed super fund (or SMSF) is a private superannuation fund that individuals manage themselves. It is established for the sole purpose of providing financial benefits to members in their retirement, and to protect and provide for their loved ones following their death.
One of the biggest benefits of SMSFs is that they give their members complete control and flexibility over how they choose to invest their funds.
What Are The Advantages Of Managing Your Own Super?
There are many advantages of self-managed super funds, but your decision to adopt a self-managed super fund investment strategy will depend on your unique personal circumstances and goals. Here are some of the benefits:
Member’s Choice
Members of an SMSF have access to a broader range of investment options and categories in comparison to members of traditional super funds. Members also have complete freedom over when their super is invested, and how.
More Members
SMSFs allow up to 6 members per fund. Members can consist of partners, spouses, family and friends. A larger number of members can result in a bigger balance, which in turn will give your SMSF more investment options and opportunities.
Full Visibility
Members of an SMSF have full transparency on the current investments of their fund, as well as visibility on their day-to-day transactions.
Passing Down Your Benefits
SMSFs enable members to clearly outline who will receive their benefits when they pass away. Members are also provided with the flexibility to direct how the benefits are distributed amongst their nominated beneficiaries given their individual circumstances.
How To Set Up A Self-Managed Super Fund
If you’ve decided that an SMSF is the right option for you and your beneficiaries, there are several steps you need to take in order to get your fund up and running:
Establish a Trust
Before registering an SMSF with the ATO, you must first set up a trust.
Complete a Trust Deed
The trust deed could contain provisions that address:
Nominated trustees of the SMSF
Trustee rights
Rules
When and how benefits will be paid
Sign a Declaration Form
Trustees or directors of the corporate trustee of an SMSF must sign a declaration form. The form states that the trustee understands all of their obligations, duties and responsibilities and must be completed within 21 days of the individual becoming a trustee.
Lodge an Election to be Regulated With the ATO
Trustees must lodge an election to be regulated with the ATO within 60 days of establishing an SMSF. Failure to lodge an election notice will mean that the SMSF will be taxed at the highest marginal tax rate.
Set Up a Cash Account
Trustees will need to set up a cash account in order for the fund to accept contributions, earnings and rollovers. The account will also be used to pay expenses including:
Accounting fees and supervisory levies
Member benefits
Taxation liabilities
Register your SMSF with an Electronic Service Address
The ESA is required so that your SMSF can communicate with the SuperStream service which is required for Rollovers, contributions, and other payments.
What Factors Should Be Considered When Developing A Self-Managed Super Fund Investment Strategy?
When adding additional members to your SMSF, it’s important that you consider the financial situation of each individual member, as this could impact other members negatively. With this in mind, it’s also important to acknowledge the insurance needs of all involved members to ensure adequate levels of coverage for all members. To help reduce risks, members should consider diversifying the fund’s investment options.
Who Can Be A Member Of A Self-Managed Super Fund?
All SMSF members are required to be trustees of the fund. Previously, an SMSF can have up to 6 members. Individuals under the age of 18 are eligible to become members of an SMSF, as long as a parent or legal guardian represents them and acts on their behalf.
A new member must accept the responsibilities of becoming a trustee of an SMSF by signing a trustee declaration. A new member:
Can’t be registered bankrupt
Can’t have an employee/employer relationship with another member of the same fund, unless they are relatives
Must not have been previously disqualified as an SMSF trustee by the:
- Australian Taxation Office (ATO)
- Australian Securities and Investment Commission (ASIC)
- Court
What Are The Differences Between An SMSF And A Traditional Super Fund?
How Are SMSFs Regulated?
As explained above, SMSFs are regulated by the ATO and ASIC, whereas public super funds are regulated by the Australian Prudential Regulation Authority (APRA).
ASIC manages the registration process for all independent SMSF auditors, while the ATO ensures that SMSFs are remaining compliant with their financial reporting and taxation obligations.
Remaining Compliant With Superannuation And Tax Laws
While members have the responsibility of making the investment decisions for their fund, they are also required to remain compliant with super and tax laws.
SMSFs require members to abide by the following administrative obligations:
Maintain records
Provide financial statements when requested
Complete tax returns
Organise independent audits
What Happens When SMSF Members Don’t Comply With Superannuation And Tax Laws?
When a member of an SMSF doesn’t comply with super and tax laws, there are heavy penalties and ramifications involved. These include:
Their fund losing concessional tax treatment
Being disqualified from the fund – this means that members can no longer be part of their current SMSF, and they cannot start a new fund
Fines
Imprisonment (depending on the severity of the crimes)
Conclusion:
SMSF’s certainly have an added degree of complexity associated with them. If you need specific SMSF advice, please don’t hesitate to contact us – we’re only a phone call or email away.