Self Managed Super Funds
A self managed super fund (SMSF) may not be right for everyone. When assessing the merits of establishing an SMSF you should consider both the advantages, costs and responsibilities associated with being a trustee of a self managed fund.
What is an self managed super fund
A self managed super fund (SMSF) is a form of superannuation fund that offers members the opportunity to take control of their retirement savings and manage the day to day decisions and obligations associated with running a superannuation fund.
Some people prefer the hands-on control that can only be attained through a self-managed super fund. However, with this added control comes both additional responsibilities and greater workload. Clients need to be prepared for the need to research their investment options and track the performance of the fund on a regular basis to ensure investment decisions meet the needs and objectives of the funds members. In addition there is the need to ensure that the fund meets all the obligations under the very strict rules regulated by the Australian Taxation Office (ATO).
People looking at setting up a self managed super fund should also have a clear understanding of the cost involved in setting up and managing the fund in an ongoing basis.
An SMSFs must be established for the sole purpose of providing benefits to the fund members on retirement and to any dependents in the event of the death of a member. This is referred to as the Sole Purpose Test.
Why establish an SMSF
In certain circumstances a self managed super fund can provide members with several benefits including:
- greater personal control over retirement savings
- a wide choice of investment options including managed investments, listed shares, listed investment companies (LICs), corporate bonds, exchange traded funds (ETFs) and direct property
- the ability to develop your own investment strategy and make decisions on when to buy and sell individual investments
- potential tax advantages over other forms of super, and
- potentially lower annual fees than industry and retail funds.
- The ability to pool resources with family members, and
- estate planning benefits
What are the requirements for establishing an SMSF
To establish an SMSF, the fund must meet the following conditions:
- member numbers are limited to a maximum of 4 members (and can have as little as 1 member)
- each member of the fund must be a trustee of the fund
- each individual trustee of the fund must also be a member of the fund
- no trustee of the fund can receive remuneration for their services as a trustee.
- no fund member can be an employee of another fund member, unless they are related
As an alternative, an SMSF can have a company trustee (commonly called a corporate trustee). Each director of the corporate trustee must be a fund member, and each fund member must be a director of the company trustee.
There are some exceptions involving single member funds.
Responsibilities of a trustee
If you establish an SMSF you are responsible for running your SMSF and as a trustee of the fund you have certain responsibilities that you must adhere to in order for your SMSF to remain a complying fund that is eligible to receive favourable tax treatment.
As a trustee of your SMSF you must:
- act in the best interests of all fund members when you make decisions
- manage the fund separately from your own affairs, keeping the SMSF’s assets and money separate from all personal and business assets.
- make sure the money in the fund is only accessed if the law allows it.
- develop and implement your fund’s investment strategy keeping in mind the interests of all members.
- retain control over your SMSF at all times
- allow beneficiaries access to certain information about the SMSF as required
There are severe penalties for trustees who fail to act in accordance with their SMSF trust deed.
Setting up an SMSF
Briefly the steps required to set up a new self managed super fund include:
- Obtaining a trust deed which outlines the operating rules for the fund.
- Each trustee then signs a consent to act as trustee as well as signing the ATO Trustee Declaration.
- Electing to become a regulated fund.
- Obtaining a tax file number (TFN) and Australian business number (ABN) for the fund.
- Establishing a new (and separate) bank account for the fund to ensure all money belonging to the fund is held separate from the accounts of members, trustees and related employers.
- Prepare and implement the investment strategy for the fund keeping in mind the needs of all members. The investment strategy needs to:
- make particular note of what types of investments the fund can hold.
- Take into account the funds ability to provide sufficient returns for the members.
- Adequately address considerations associated with investment risk.
- Ensure that the resultant assets are appropriately diversified.
Discover how a Lifespan adviser can help you with your self managed super fund, contact Lifespan Financial Planning about all your SMSF needs today.
1. for further information regarding specific regulations, interested parties should refer to the relevant pages from the ATO’s website “Running a self-managed super fund”.