What Is A SMSF?

Instead of conventional superannuation arrangements with a provider that is generally nominated by an employer, a Self-managed Super Fund (SMSF) is managed by their members, for their members.

What do the members control?

The members of a SMSF ultimately have effective control and management over all facets of the fund. This includes:

  • Investment decisions.
  • Fund administration.
  • Compliance with laws and regulation.

The trustee is the sole person responsible for managing the SMSF. They can choose what the SMSF will invest in, obtain finance for the SMSF and ensure that all taxation requirements are fulfilled by the SMSF.

Why are SMSFs gaining popularity?

There are many reasons why individuals are now setting up a SMSF, however the overarching factor is the ability of the trustee and members to control every investment decision and create their own retirement future.

Fund members can choose to invest in shares or property and can diversify their investment portfolio as they see fit.

This is often more advantageous than if a superannuation provider controlled your retirement funds. Members of SMSF can maximise the profitability of their fund, leaving more money for retirement and expanding their property portfolio.

Benefits of a SMSF

There are many benefits associated with running a SMSF. These include:

  • More investment choices: A SMSF can invest in a wider variety of asset classes than a standard retail super fund, such as direct property.
  • Greater control: being able to manage the funds means that you have greater control over your investment decisions and the management and operation of your fund.
  • Tax benefits: Self Managed Super Funds (SMSFs) receive many tax exemptions, paying significantly less tax than other structures.
  • Lower fees: generally, you will pay less fees than that which applies to other superannuation funds. This can end up saving you thousands of dollars.
  • Flexible income: you can decide how to invest and when to invest based on market movements. This way your SMSF can adapt to changing economic conditions.
  • Protected funds: if the SMSF goes bankrupt, your contributions are usually not subject to a claim by creditors.

Disadvantages of a SMSF

Whilst members have more control over the way their funds are invested, alongside this control comes the responsibility of having to organise income tax returns, financial reports and making sure that the rules relating to SMSFs are not breached.

Other downsides of a SMSF include:

  • Administration time and costs: it is often time consuming to manage the administration of a SMSF and keep up with reporting obligations.
  • Risk of breaching regulations: if you don’t get the right advice and taxation help, your SMSF may not comply with the legislative requirements and regulation. A breach may result in any number of penalties, including fines and prosecution of the trustee.
  • Restrictions on use of funds: as a SMSF is essentially for retirement, you cannot access these funds until you meet certain conditions. You are also prohibited from lending these funds to members.

Sound complicated? Luckily, we can assist you with the management of your SMSF, taking the hassle out of the process. Please enquire online find out how we can help you manage your SMSF.

SMSF structure and rules

The structure of an SMSF consists of a fund trustee, the fund assets and the members. This differs substantially to other types of funds.

This is especially the case if you are using your SMSF to borrow funds for the purposes of investing in residential or commercial property.

The SMSF trustee

A SMSF trustee is the official controller of the fund. They are responsible for signing off tax returns, financial statements and making all decisions.

The trustee can either be a member or a company controlled by the member. If you choose to have individual members as trustees, the fund:

  • Must have four members for less.
  • Each member must be a trustee.
  • No member can be an employee of another member, unless they are related.
  • No trustee can be paid for their duties or services as a trustee.

Company as a trustee

Some Self Managed Super Funds elect to have a company serve as a trustee. This is acceptable, however there are certain conditions that need to be met.

If you choose to have a company as trustee then the fund:

  • Must have four or less members.
  • Each member of the fund must be a director of the company.
  • Each director of the corporate trustee must be a member of the fund.
  • No member can be an employee of another member, unless they are related.
  • The corporate trustee must not be paid for its services as a trustee.
  • No director of the corporate trustee must be paid for their duties or services as director, in relation to the fund.

What if the SMSF only has one member?

Some SMSFs only have a single member. Where this is the case, It is up to the individual how they choose to structure their SMSF.

You can choose to have either a corporate or individual trustee.

The trust fund

The trust fund consists of all the retirement savings accumulated by the members in their super fund. It is controlled by the trustee who managed these funds for the benefit of the fund members.

Members would normally have this money invested in a mix of cash, shares and other assets, according to the fund’s investment strategy.

When can I access the funds?

Although the members can dictate what the SMSF invests in, they cannot withdraw any funds at their own discretion.

Generally, members can only access their fund when they reach a set preservation age or retirement. It is illegal to access your superannuation early and heavy fines may result.

There may be other conditions, so it is important that you check your Self Managed Super Fund trust deed. Please read on to find out more, or enquire online to get in touch with a SMSF expert.

The trust deed

The fund is set up by executing a trust deed. This is a document prepared by a lawyer which has all the funds rules and (hopefully) complies with the regulators view of the law.

Once the deed is signed, the fund can receive income or transfers from other funds and commence to operate.

The fund members

Almost any Australian resident can be a member of a SMSF.

As a member, you are entitled to your share of the SMSF assets that you have accumulated.

Depending on your trust deed, you can choose to be entitled to either a share of the general assets of the fund, or a set of specific segregated assets.

Receiving the funds

Once you meet a condition of release, the SMSF funds can be paid to you either as a lump sum or as a pension.

You will be taxed on this income, however if you are over 60 years of age, you may receive the funds tax free.

Speak to an expert

There are many rules and regulations which govern the management and administration of a SMSF.

We suggest that you browse this website to find more information or alternatively, contact us to discuss your situation. Our experts can assist you in choosing the right structure for your SMSF.

Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.