What is a Self Managed Super Fund (SMSF)?

A Self Managed Super Fund (SMSF) provides individuals with a means to save for 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.

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    As it states in the title, an SMSF is ‘self-managed’ meaning that the day to day administration, reporting and investment decisions are the responsibility of 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 that are generally not available in most other superannuation funds. 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’.

    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, will 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.

    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….

    This leads on to the question…

    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 invest in a Retail Superannuation Fund instead.

    If you chose to outsource the management, 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 also make the running costs of an SMSF very 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 an increasing number of individuals are opting for the Retail Superannuation route. Like our Australian Expatriate Superannuation Fund (link to page), 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 them and not you. You will need to pay an annual administration fee to the provider but in many cases, this can be much more cost effective than an SMSF.

    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.

    Please note that content in this article is factual information. The information is not intended to imply any recommendation or opinion about a financial product. The information in this article has been provided without taking into account your objectives, financial situation or needs.

    Should you seek personal advice which considers your objectives, financial situation or needs and so because of that advice should be considered along with the reading of the Product Disclosure Statement or other relevant information before advice is acted on.