Self-Managed Super Funds

Self-managed super funds (SMSFs) are a way of saving for your retirement.

The difference between an SMSF and other types of funds is that the members of an SMSF are usually also the trustees.

This means the members of the SMSF run it for their benefit and are responsible for complying with the super and tax laws.

What is involved with an SMSF

So you’re thinking about starting your own self-managed super fund. That’s great – but are you aware of what’s really involved?

Let’s take a quick look at a typical self-managed super fund.

When you first set up you need to

  • Decide on fund members and trustees;

  • Establish the trust and trust deed;

  • Set up a bank account,

  • Register with the ATO,

  • create your investment strategy,

  • and include a plan for when your SMSF ends

There’s more to consider once set up including

  • Rolling over of existing super;

  • Organising employer contributions;

  • Accepting contributions within limits

  • Making investments without breaking rules;

  • Regularly reviewing the investment strategy; and

  • Documenting and maintaining records for up to 10 years.

Then, each year you need to

  • Value assets;

  • Prepare accounts & financial statements,

  • Appoint a registered Self Managed Super Fund auditor;

  • Lodge the annual return,

  • Pay the Self Managed Super Fund levy; and

  • Any tax that’s due.

When you start making payments, you need to

  • Decide if any assets need to be sold;

  • Ensure minimum payments are met each year;

and you may also need to

  • Appoint an actuary;

  • Withhold tax; and

  • Give payment summaries to members as well as the ATO.

Finally, when the fund is finished you need to

  • Get a final audit; and

  • lodge your final return;

plus you’ll also need to

  • Pay any outstanding tax; and

  • Payout or rollover all of the assets.

As you can see, there is a lot involved. Before you decide to start a self-managed super fund, you need to consider whether you can manage everything or whether you are prepared to pay Self-Managed Super Fund professionals to help.

For more SMSF information visit the ATO website at www.ato.gov.au

Thinking about starting your own self-managed super fund?

Thinking about self-managed super

If you set up a self-managed super fund (SMSF), you're in charge – you make the investment decisions for the fund, and you're held responsible for complying with the super and tax laws. It's a major financial decision and you need to have the time and skills to do it.

An SMSF must be run for the sole purpose of providing retirement benefits for the members or their dependents. Additionally, all decisions you make as trustee of your SMSF must be in the best financial interests of the members.

Don't set up an SMSF to try to get early access to your super, or to buy a holiday home or artworks to decorate your house. This is illegal and severe penalties apply.

It's best to see a qualified, licensed financial adviser to help you decide if an SMSF is right for you.

If you are thinking about setting up an SMSF, you can read more here

You can also download Starting a self-managed super fund (NAT 75397, PDF, 1.6MB) publication.

Source: ato.gov.au

Talk to a qualified, licensed financial adviser to help you decide if an SMSF is right for you.

Compare SMSFs with other super funds

There are a lot of differences between SMSFs and other super funds, but the once thing they have in common is to provide retirement benefits to their members

  • Members and trustees

    • SMSF - SMSFs can have a maximum of 6 members.

      All members are either individual trustees or directors of a corporate trustee of the fund. This means all members are involved in managing the SMSF.

      Some State and Territory laws restrict the number of trustees a trust can have, to less than 6. As an SMSF is a type of trust, it is important that clients seek professional advice to help understand if their SMSF is impacted by these restrictions. Alternatively, they could restructure/structure their SMSF to have a corporate trustee, where each member is a director of that corporate trustee.

    • Other super funds - Usually no limit on the number of members.

      Professional, licensed trustees are responsible for managing the fund.

  • Responsibility

    • SMSF - Trustees are expected to have knowledge of tax and super laws and must make sure their fund complies with those laws. Compliance risk is borne by the SMSF trustees, or the directors of the corporate trustee, who can be personally fined if their fund breaches the law.

    • Other super funds - Compliance risk is borne by the professional, licensed trustee.

  • Investments

    • SMSF - Trustees develop and implement the fund’s investment strategy and make all investment decisions.

    • Other super funds - Most allow you some control over the mix and risk level of your super investments, but you generally can’t choose the specific assets your super will be invested in

  • Insurance

    • SMSF - Trustees must consider whether to purchase insurance for their members. Insurance premiums may be higher than in other super funds.

    • Other super funds - Most Industry funds offer insurance cover to members. Public Offer funds may offer insurance cover, or the member may apply for underwritten insurance cover and have this paid from the super fund.

  • Investments

    • SMSF - Trustees develop and implement the fund’s investment strategy and make all investment decisions.

    • Other super funds - Most allow you some control over the mix and risk level of your super investments, but you generally can’t choose the specific assets your super will be invested in

  • Insurance

    • SMSF - Trustees must consider whether to purchase insurance for their members. Insurance premiums may be higher than in other super funds.

    • Other super funds - Most Industry funds offer insurance cover to members. Public Offer funds may offer insurance cover, or the member may apply for underwritten insurance cover and have this paid from the super fund.

  • Regulation

    • SMSF - Regulated by the ATO. Trustees are required to engage with the ATO to manage their fund.

    • Other super funds - Regulated by the Australian Prudential Regulation Authority (APRA). Generally, members don’t have to engage with APRA.

  • Complaints / disputes

    • SMSF - The ATO is not involved in resolving disputes among members. Disagreements can be resolved through alternative dispute resolutions techniques or in court, at the members’ own expense. There is no government compensation scheme.

    • Other super funds - Members have access to the Australian Financial Compliants Authority (AFCA) and may be eligible for statutory compensation.

  • Fraudulent conduct or theft

    • SMSF - No government financial assistance is available to SMSFs.

      Members may have legal options under Corporations Law but there is no guarantee that compensation will be awarded.

      Be aware of who you provide your personal information to. If you are approached by a financial adviser, make sure they are registered with ASIC.

    • Other super funds - Members may be eligible for government financial assistance in the event of fraud or theft.

Source: ato.gov.au

Do you wish to seek professional advice to help understand the differences between an SMSF and other Super Funds?

Consider the costs, time, and skills

You need to have the time and skills to manage your Self-managed super fund, and there are ongoing running costs.

As a trustee of an SMSF you'll be responsible for operating your fund within the law. If you don't, you may face severe penalties and your fund may suffer tax consequences.

You'll also need to make investment decisions for the SMSF that are in the best financial interests of all members. You will need to formulate and give effect to an investment strategy that you review and update regularly, while understanding and complying with the restrictions on the investments an SMSF can make.

It costs money to set up and run an SMSF. You might find that the fees you pay for an SMSF are more than you would pay in another type of super fund. Every year that you have an SMSF, you'll need to pay for an independent audit and the supervisory levy. Most SMSFs also pay for additional help, such as:

  • preparing the SMSF annual return

  • valuations of the SMSF's assets

  • actuarial certificates for SMSFs paying income streams (pensions)

  • financial advice

  • legal fees, for example if the trust deed needs to be amended

  • assistance with fund administration

  • insurance for members.

Source: ato.gov.au

Do you wish to speak to a professional who can help to prepare an investment strategy and give you advice about investment and insurance products in your self-managed super fund?

Setting up a Self-Managed Super Fund

Your self-managed super fund (SMSF) needs to be set up correctly so that it's eligible for tax concessions, can receive contributions and is as easy as possible to administer.

To set up an SMSF you need to:

Before you set up an SMSF, download Starting a self-managed super fund (PDF, 1.6MB). It will help you understand if an SMSF is right for you and guide you through how to set one up.

Source: ato.gov.au

Need help to understand if an SMSF is right for you?

The cost-effectiveness of an SMSF

Starting balances below $500,000

On average, SMSFs with balances below $500,000 have lower returns after expenses and tax, and will often be uncompetitive, compared to APRA-regulated funds.

Note: The Productivity Commission in its report Superannuation: Assessing efficiency and competitiveness found that on average SMSFs with balances below $500,000 have lower returns after expenses and tax compared to APRA-regulated funds.

However, there are circumstances where an SMSF with a starting balance of below $500,000 may be in your best interests – for example

  • where the trustee is willing to undertake much of the administration of the SMSF and the management of the investments to make it more cost-effective, or

  • where a large asset (e.g. business property or an inheritance) will be transferred into the fund within a short timeframe (e.g. within a few months) after the SMSF is set up.

There will also be circumstances when an SMSF with a starting balance of $500,000 or above is not in your best interests because it does not meet your objectives, financial situation or needs. For example, you may not have the skills, time or experience to adequately carry out the duties of a trustee.

60-second Financial Health Check!

Use this quick 60-second Financial Health Checklist to see if you need a more thorough examination of your Financial Planning, Superannuation, Insurance or Investment needs.

Have Questions about how Strategic Financial Planning Advice can potentially help you?

Are you TAX ready?

Use this 60-second Financial Health Check to see if you need a more thorough examination of your financial affairs ready for tax time!

Think Capital provides Strategic Financial Planning Advice to Families, Business Owners, Professionals, and FIFO workers, in technology, mining, and associated industries.

We help you to get CERTAINTY, CONTROL, and CONFIDENCE, over your finances, giving you Ultimate Financial Independence

We use cookies to improve your experience and to help us understand how you use our site. Please refer to our cookie notice and privacy statement for more information regarding cookies and other third-party tracking that may be enabled.

Follow us on social media for daily financial tips

Leave a Google Review | Linkedin | Instagram | Youtube | Facebook

Website icon
LinkedIn icon
Instagram icon
YouTube icon
Facebook icon

© 2023 normafalconer.com

Created with
Mailchimp Freddie Badge