Frequently asked questions
- What is an SMSF?
- Who can be a trustee?
- Who are the members?
- Is an SMSF right for you?
- What are the benefits of an SMSF?
- Who regulates an SMSF?
- What are the trustee responsibilities?
- How do I set up an SMSF?
- How do I transact and invest through my SMSF?
- What investment assets are permitted in an SMSF?
- What assets are generally not permitted in an SMSF?
An SMSF, in simple terms, is a superannuation fund established for one to four members, where the members are also the trustees of the fund. The members can be individuals, families and business partners that want to grow and manage their future wealth by creating their own super fund. The key things to remember are:
- the money in an SMSF is held in trust for the members of the fund
- an SMSF and its assets are controlled by trustees
- the SMSF must be run in accordance with superannuation and tax legislation
- the SMSF receive contributions and rollovers and trustees decide how the money is invested
- when a member is allowed to access their super, the trustees may pay this money as a lump sum, pension or a combination of the two, depending on the rules of the fund.
Any person over the age of 18 can be a trustee of an SMSF provided they are not a disqualified person or under a legal disability. You cannot be a trustee of an SMSF if you:
- are insolvent (i.e. bankrupt)
- have been convicted of an offence involving dishonest conduct (against the Commonwealth, State, Territory or foreign country)
- have a civil order made against you.
The members of an SMSF are also the trustees of the SMSFs, so they control how contributions are invested and how benefits are paid, subject to regulatory controls. SMSFs must comply with the following restrictions:
- must have no more than four members
- every member must be an individual trustee of the SMSF or a director of the corporate trustee
- no member of the SMSF can be an employee of another member of the SMSF, unless the members concerned are relatives, and
- trustees of the SMSF must not receive any remuneration for their services as trustee.
Special rules apply for single member funds which may allow a non-member to act as trustee or director of the corporate trustee.
Managing your own superannuation may not suit everyone – but if you are one of an increasing number of Australians wanting to take control of your retirement planning, a Self Managed Superannuation Fund (SMSF) may be the answer.
With added control, flexibility and potential cost savings, SMSFs may provide a number of advantages over other superannuation funds.
As one of the most tax effective structures for wealth creation, SMSFs offer a number of key benefits, including:
SMSFs allow you to exercise a high level of control over fund issues such as membership, structure and the timing of your fund’s investments. As a result, SMSFs are generally suited to people who like to make their own decisions around investments and the management of the fund. You may seek advice from investment professionals but the ultimate decision is your own.
As a trustee of an SMSF you are able to consider a greater range of investment opportunities unique to SMSFs. For example, these investments may include assets connected to your business, such as commercial property.
It may also be possible to make contributions to your super by transferring certain personal investments to the fund. There are restrictions on the types and amount of investments that can be transferred but managed investments, listed shares and business real property can generally be transferred.
A major benefit of SMSFs is the control and flexibility that trustees have over the tax position of the fund. Investing in an SMSF has tax advantages that can make superannuation a powerful wealth creation strategy*.
Potential cost savings
Most fees and charges associated with an SMSF are either fixed costs or transaction fees (e.g. brokerage fees). This means the cost could be lower for funds with higher balances. Therefore, as the SMSF balance grows over time, the cost of running the SMSF generally decreases as a percentage of the fund balance.
The cost savings from administering the SMSF yourself are largely dependent on the number of assets in your SMSF, the fees and charges of various services and how much of the administration you can do yourself. When trying to quantify the cost savings of an SMSF compared with other types of superannuation funds, do not forget to factor in the amount of work involved and the time devoted to running the SMSF.
As trustees of the SMSF, members maintain complete control over the investments and the provision of benefits as well as being responsible for the ongoing compliance of the SMSF. The governing legislation for SMSFs is the Superannuation Industry (Supervision) Act 1993, known as the SIS Act.
The Australian Taxation Office (ATO) regulates SMSFs via the SIS Act and offers extensive advice on whether this approach will work for you (see the ATO website for further information). The ATO has the right to audit SMSFs for tax compliance and to ensure SMSFs are being used to effectively provide for retirement.
Trustees have responsibility for all aspects of running the SMSF, including:
- complying with the trust deed
- maintaining all records of the SMSF
- establishing and implementing the SMSF’s investment strategy
- complying with all regulations under the SIS Act
- lodging an annual return, and
- keeping up to date with changes in the law to ensure the SMSF remains compliant.
The penalties for not complying with all the laws and regulations can be severe. These include applying higher taxes on the fund, freezing the assets of the fund and criminal prosecution of the trustees.
The process is reasonably straightforward and is made even easier by the support available through ANZ:
- The first step is to decide how you want to structure the SMSF – do you want to have a corporate trustee or individual trustees? Who are the members going to be? This is an area where professional advice is recommended. Read more on planning and advice.
- Once you have resolved the structure, you need to take care of the legal requirements. The key document is the Trust Deed which establishes the rules governing the fund but there is a range of ATO and fund documentation, such as registering for an ABN, trustee consents and member applications, that need to be completed to ensure the fund is set up correctly at the outset. Read more on SMSF set-up and fund administration.
- Once the documentation is complete and the ABN has been issued, the fund will need to establish one (or more) bank accounts to receive member contributions and rollovers and to pay out pensions or lump sum payments. Read more on how to manage your SMSFs’ cash flow.
- The investment of monies received by the fund will need to be undertaken in accordance with a documented Investment Strategy. The strategy should consider investment objectives, risk tolerance, asset allocation and time horizon and the trustees should ensure these parameters are met and regularly reviewed. Read more on your SMSF investments.
A cash account is typically used as the ‘cash hub’ of your SMSF. This account is central to the effective management of your SMSF as it is the account through which:
- all contributions and rollovers are received
- all lump sum and pension payments to members are paid, and
- all investments are settled.
While trustees have full discretion in making investment decisions for the SMSF, they need to ensure all investments are consistent with the fund’s trust deed and investment strategy and do not breach the SIS Act or other laws.
The following investments will generally be acceptable through your SMSF:
- Australian shares and other listed securities (e.g. Exchange Traded Funds and property trusts)
- managed funds
- bank deposits, and
- direct property (including foreign property).
Particular attention needs to be given when considering investments in the following:
- collectibles, such as artworks, coins or jewellery
- derivatives, warrants and other structured products.
It is recommended that trustees seek professional investment advice and consider the potential income and growth as well as the risks, liquidity and the diversification of the portfolio and whether it is consistent with the overall investment strategy before making any investment.
Superannuation law does not prescribe what the SMSF can invest in. However, trustees must ensure all investments are made with the fundamental purpose of providing for the retirement of its members.
There are certain investments that are generally not permitted through an SMSF. These include:
- investments delivering benefits to a person today rather than in retirement
- loans to SMSF members or their relatives
- a business to be operated by the SMSF or its members, and
- non-arm’s length transactions.
More information on eligible assets is available from the Australian Tax Office website.
* ANZ strongly recommends you consult with your tax adviser.
As trustee of a SMSF you are responsible for the compliance of the fund. You should be aware that there are severe consequences for failure to comply with the superannuation laws. For more information please visit the Australian Tax Office website or seek independent advice.
ANZ strongly recommends that you (as trustee of a SMSF) seek independent professional advice in relation to your personal responsibilities and potential liabilities before making any investment decisions, as a breach of superannuation laws can result in substantial penalties.
The information provided is general information only and is current as at November 2012. The content does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you. Before making any decision to acquire services through Super Concepts or acquire, hold or sell any financial product, ANZ strongly recommends that you seek financial planning and/or tax advice and read the relevant Product Disclosure Statement and/or Terms and Conditions.
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