What is a Self Managed Super Fund (SMSF)?admin
Self Managed Super Fund (SMSF)
There are various types of Superannuation options in Australia, such as Retail Super Funds, Corporate Super Funds, Industry Super Funds, Public Sector Super Funds and Self Managed Super Funds.
A Self Managed Super Fund (SMSF) is a savings plan which provides you with a vehicle to save for your retirement. In this article, we will outline the main features of an SMSF, the role of the trustee, and the responsibilities required to manage the fund.
As it states in the title, an SMSF is ‘self-managed’ meaning that the day to day administration, reporting and investment decisions is your responsibility as the Member / Trustee of the fund. An SMSF can hold up to 4 members, who are all trustees of the fund. In many cases, a family will set up an SMSF where each family member is a trustee of the fund.
Many individuals choose to take out a self-managed super fund to gain access to the broader range of investment options. These include certain shares and collectives, direct property investments and the ability to borrow via Limited Recourse Borrowing Arrangements (LBRAs). However, these types of investments are generally more suited to the ‘sophisticated investor’, (i.e. one who has a firm understanding of Superannuation and the investment markets).
Unlike Retail Superannuation Funds, managing an SMSF carries a greater level of responsibility and a higher administrative burden on the member/trustee. An SMSF is regulated by the Australian Tax Office (ATO) and all trustees must ensure that the management of the fund complies with superannuation legislation as failure to do so, may result in tough penalties. It is therefore essential that you have a thorough understanding of how they work and the legislative requirements of managing them.
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Listed below are some of the basic rules of an SMSF:
- The SMSF must be set up and registered in Australia with the Australian Tax Office (ATO).
- The SMSF must be set up by individual trustees or corporate trustees.
- The SMSF cannot hold more than four members.
- The members cannot be employees of other members (unless it is a family-run fund).
- They must be used only to provide retirement benefits to the members. This is a requirement under the ‘Sole Purpose Test’.
- An investment strategy must be established and documented at the commencement of the fund. This must also be continuously reviewed.
There are also daily administrative responsibilities like auditing, documenting the ongoing investment strategy, ATO payments, tax-based reporting, the list goes on….
A Suitable Option for You?
This leads on to the question… Is a Self Managed Super Fund suitable for you? This really depends on a number of factors but you should ask yourself these questions :
- Do you have a firm understanding of investments and the financial markets?
- Do you fully understand the compliance requirements of managing an SMSF?
- Do you have the time to manage and run an SMSF?
- Do you understand all the tax and legislative requirements of running an SMSF?
If the answer is no to these questions, then you have two options – You can either outsource the management and administration of them or you can choose another method of saving for retirement, for example, use a Retail Superannuation Fund. Check our Retail Superannuation Guide.
If you chose to outsource the management of your SMSF, you must ensure that the fund is managed correctly and in line with the ATO rules and legislation. Failure to do so and you are liable to any penalties as trustee of the fund. You must also consider that outsourcing the management and administration can, in many cases, make the running costs of the SMSF expensive as this will be an added expense on top of establishment fees, annual audit fees and ongoing investment fees.
It is for these reasons that a number of individuals opt for the Retail Superannuation route. Like our Australian Expatriate Superannuation Fund, the day to day administration and management of the fund is handled by the Retail Superannuation provider who is also the trustee, meaning that the liability of managing the fund correctly is on the fund provider and not you. You will need to pay an annual administration fee to the provider but this can be more cost-effective than an SMSF. For more information on the differences between the two options, check out our article SMSF vs Retail Superannuation Funds.
If you would like to find out more information about our Retail Superannuation Fund, please do not hesitate to contact us today and a member of our team would be happy to answer any questions you may have.
This article does not contain personal or financial advice. It is provided for general information only and does not take into account your personal objectives, financial situation or needs. IVCM is not authorized to provide you with any personal or financial advice.
If you require financial any advice then you must make sure that you obtain advice from a suitably qualified financial adviser.