What Is A Self Managed Super Fund (SMSF)?
This guide is part of our Comprehensive Guide To SMSFs. We suggest checking out the full guide in order to get a better understanding of SMSFs.
What makes up a Self Managed Super Fund (SMSF)
In simple terms, a self managed super fund is a tax structure designed for retirement and consists of the following :
- There is a trust deed in place meeting the requirements of the Superannuation Industry (Supervision) Act 1993 (SIS Act)
- There are four or less members
- All members of the fund are a trustee
- None of the members of the fund are an employee of another member of the fund (e.g your staff for example if they are unrelated), the exception is if they are related
- None of the trustees of the fund receive any remuneration for their services as trustee (so you can’t pay yourself for managing your super fund)
Reasons why you would establish a Self Managed Super Fund:
According to the ATO some of the reasons why people setup a self managed super fund include:
- Better flexibility and choice in your investment decisions
- Stronger estate planning and being able to leave a tax effective legacy
- Greater cost savings vs other super funds
- Combine family benefits in the same fund to invest into larger assets
- Greater control and choice of your investments
- Better tax planning opportunities now and in future
- Better investment performance of your superannuation assets
- Improved tax benefits and concessions
What are your responsibilities when running a SMSF?
With great benefits comes great responsibilty, although the good news is that most of this can be outsourced to your superannuation tax professional or accountant. As a trustee of your own superannuation fund you have specific responsibilities to the members of the fund and complying with SIS Act and the ATO.
Responsibilities as trusteee of your SMSF include:
- Making sure the investments are managed and invested in accordance with an investment strategy.
- Making sure that your fund is compliant year on year, this includes up to date trust deeds, ongoing administration and honouring of the superannuation and ATO laws.
- Record keeping for your superannuation fund including bank accounts, insurance, investment statements, valuations etc. These should be kept seperate from your personal financial interests
- Ensuring your super fund’s investments are held in the correct names (the name of the trustee)
- Reviewing the life insurance needs of the members, this include life cover and disability cover
- Getting your fund audited each year by an independant auditor
Check out our guide on SMSF trustee rules and responsibilities for more info.
Who is an SMSF suitable for?
There are a many views on who an SMSF could be suitable for. Whether it is the right strategy for you or not will depend on your age, retirement plans, how much you earn, how much you have in super, the structure of your super fund, the number of members and the costs of managing it. You should seek the advice of an SMSF accountant or financial adviser to assess the suitablity to your situation.
Here are a number of scenarios to consider as to whether or not a self managed super fund (SMSF) may be right for you:
- If you are a young couple or working professional with an asset balance of more than $120,000 in superannuationand actively contributing
- If you are closer to retirement within the next seven to twelve years and are close to having a balance between $200,000 and above
- You may be around three to four years away from retiring and expect have a balance of more than $400,000 within twelve months of setting it up
- You are intending to contribute the maximum contributions you can for your age and looking to bolster your retirement funding.
You will need to weigh up the above with the fees and costs of running your own super fund as anything below these balances could end up being more expensive for you, however you will also need to consider the opportunity of investing with more flexibility and control.
When it comes to making the right decision you should always seek advice from a qualified superannuation or tax professional before you do anything. Learn more and watch our free education video workshop on self managed super here.
How do you manage the administration of your SMSF?
Given the amount of reporting and tax requirements you are reponsible for and as an owner of self managed super fund you are most likely to outsource this to other professionals to reduce the risk of non compliance, save time and improve your investment performance.
Some of the administration duties include:
- Ensuring you follow your fund’s investment strategy in line with the level of risk and asset allocation. This can include a variety of investment strategies such as direct shares, direct property, managed investments, bonds and commodoties.
- Annual reporting including a tax return of the super fund, member statements, minutes of the trustee’s and independant audit of the fund.
- Setup and manage a cash management or similar savings account that will be used to operate the super funds working capital. This makes reporting and monitoring transactions simpler and will reduce the time it takes to review your superfund accounts each year.
- Investing in and setting up term deposits with different terms and rates of interest.
- Payment of super taxes, ASIC fees and any other running costs, these must come from the super fund accounts and not from the individual.
Avoid losing out on your financial future learn more about your superannuation watch this free video.
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For greater flexibility over investment options
I believe my SMSF can perform better than the previous superfund
Better tax planning
To save money on fees
Desire to have my family in the same fund
To consolidate a number of super accounts
Due to recent tax concessions/incentives