A Self-Managed Superannuation Fund (‘SMSF’) is essentially a superannuation fund which is controlled by you.
A SMSF can have up to four members, all of whom must be trustees (and all trustees must be members). As members and thus trustees, you make all decisions relating to the operation of the SMSF, including how the SMSF’s assets are invested.
While this gives you added responsibility in relation to your superannuation, the majority of the compliance and administrative tasks can be outsourced to your accountant and financial planner, meaning you can enjoy the flexibility and control that a SMSF provides
Self-Managed Superannuation Funds (SMSF) now account for 99% of the total number of Regulated Superannuation Funds in Australia and account for over 30% of the $2 trillion in assets held in those Funds
As the Government encourages Australians to take responsibility for reaching their own financials retirement goals, now, more than ever, more people are required to deal with their Superannuation at some point
Reasons for the increase interest include:
The Trustee/s of the SMSF can choose their own investments in a wide range of categories including shares, property (residential & commercial), farm land and other investments like coins & stamps. There are various superannuation laws to adhere regarding the assets and from whom they can be acquired from and they can be stored.
A genuine Intergenerational wealth accumulation investment vehicle with no fixed time for maturity
The previous Government introduced ‘Simpler Super’ which was to provide tax-free lump sums and ‘tax-free’ pensions payable from an SMSF to the member upon reaching the qualification age of 60. This is a massive benefit to the members during retirement compared with all other types of investment structures and products.
How much do I need to start my own SMSF?
A Self-Managed Superannuation Fund is required to lodge a tax return each year and also to have an audit performed each year. With this in mind, most Finance experts recommend that a client has a balance of at least $200,000 in their SMSF for it to be cost effective when compared to wholesale or industry superannuation fund offerings.
In your SMSF, the members account balances are pooled. Therefore partners with $200,000 in total could have sufficient funds to consider establishing their own SMSF.
What are the advantages of having my own SMSF?
The main advantages of having a SMSF include:
- you have greater freedom over how your superannuation benefits are invested. You can decide which assets the SMSF invests in, including direct shares and direct property, unlike a public offer superannuation fund where the investment decisions are made on your behalf
- you have greater control over the taxation benefits achieved within the fund. You as trustees can structure the Fund’s investments to maximize tax effectiveness
- you have greater control over the management of your superannuation benefits. You can actively participate in the administration of the SMSF, including preparation of all required accounts and record keeping (although some tasks can be outsourced to professionals such as your accountant and financial planner)
- you can reduce administration costs. Most of the costs of running a SMSF are fixed (eg. accounting costs, other compliance costs) regardless of the level of assets within the fund. This allows you to achieve economies of scale where you have sufficiently large assets within the fund
- you can have more certainty in relation to your estate planning arrangements. Many public offer superannuation funds allow you to nominate who you would like to receive your accumulated superannuation benefit on your death, but the ultimate decision is made by the trustee. As trustees of your own SMSF, you can control the distribution of superannuation benefits on the death of a member.
What are the disadvantages?
The main disadvantages of having a SMSF include:
your obligations and responsibilities as trustees. Superannuation legislation imposes significant administrative and compliance tasks on the trustees of SMSF’s, and non-compliance carries severe penalties. However, the majority of these obligations can be met with the assistance of your accountant and/or financial adviser.
*Other matters to consider
Under the regulations for the operation of self-managed superannuation funds a trustee or trustees must be appointed to oversee the operation of the fund. Where individual persons are to be the trustees, there must be two persons. Alternatively, you can elect to have a corporate trustee of your fund, in which case a single person can be appointed as the director of the company acting as trustees. This would be a single director company, which would entail an establishment cost of around $700 and ongoing annual costs of approximately $500.
Should you choose to enlist the help of a financial planner, there will be ongoing advice fees that will be incurred by the fund. These vary from client to client and are dependent on each fund’s particular circumstance. Any charges that you are likely to incur will be clearly spelt out to you in your personalized Statement of Advice (SoA).
A trust deed would also need to be prepared if you elect to start a SMSF. The cost of this deed and the associated compliance paperwork to register the fund with the ATO is estimated at approximately $700. A deed is required regardless of the type of trustees implemented.
Investment options are many and varied within a SMSF. A portfolio of investments will be recommended and tailored to the members of the superannuation fund’s needs. Investments can include, but are not restricted to, shares, property (both direct and through trusts), preference shares, term deposits, cash, international index funds, etc.
Whilst you have a great deal of freedom of the investment choices you can make within your fund, assets purchased for personal use are strictly forbidden from being held within a fund. For example, an investment property down the coast used by the family at Christmas is not allowed.
Finally, under recent rule changes, it is also possible to borrow funds within your fund to gear a property or share portfolio purchase. There are certain conditions that need to be met, but we are more than happy to discuss these with you.