Are you thinking of setting up a self-managed super fund?

Like other super funds, SMSFs are a way of saving for your retirement. Generally, the main difference between an SMSF and other types of funds is that members of an SMSF are the trustees. This means the members of the SMSF run it for their own benefit.

It is a major financial decision, and you need to have the time and skills to do it. Licensed financial advisers, tax agents and accountants can also help you understand what is involved.

As all SMSFs are trusts, there are certain steps you must follow under trust law to set up your fund correctly. A trust is an arrangement where a person or company (the trustee) holds assets (trust property) in trust for the benefit of others (the beneficiaries). A super fund is a special type of trust, set up and maintained for the sole purpose of providing retirement benefits to its members (the beneficiaries).

Things to consider

Setting up and operating an SMSF is a major financial decision. After all, the responsibility for running the fund and complying with the law rests solely with you as the trustee of your SMSF.

While SMSFs are great for some people, they do not suit everyone. Managing your own super takes time, knowledge, skill, and money, so before deciding to setup an SMSF:

  • Consider whether you have the
    – time, knowledge, and skill to manage your own super fund
    – assets and money to make the fund viable.
  • Compare the costs and benefits of running an SMSF with other retirement saving options.
  • Make sure you are setting up the fund solely to pay retirement benefits to members or members’ dependants in the event of the member’s death.
  • Check you understand what is involved in managing your own fund and what it means to be a trustee.
  • For your fund to be an SMSF it must meet several requirements under the super laws.
  • The requirements can vary depending on whether your fund has individual trustees or a corporate trustee. Generally, anyone 18 years old or over and not under a legal disability (such as bankruptcy or mental incapacity) can be a trustee of an SMSF unless they are a disqualified person.

Rollovers and transfers

Once your fund is established, a member can rollover or transfer some or all their existing super benefits from other super funds. Before they can do this, they need to provide proof to their former super fund that your SMSF is a regulated fund and is eligible to receive rollovers.

Members of your SMSF can use a Request to transfer whole balance of superannuation benefits between funds form to rollover the whole balance of their super benefits to your fund. They must also meet the requirements of the fund they are leaving.

Investing your fund’s money

Being a trustee of an SMSF gives you more flexibility in investing your fund’s money. Unlike some other super funds, you can choose the investments for your fund, but you must invest according to the:

  • fund’s trust deed
  • investment strategy
  • super laws.

While the super laws do not tell you what you can and cannot invest in, they do set out certain investment restrictions you must comply with.

For example, in most cases, trustees cannot:

  • use the fund’s money to provide loans or other financial assistance to members or member’s relatives.
  • acquire assets (with limited exceptions) from related parties of the fund, including
    – fund members and their associates.
    – all the fund’s standard employer‑sponsors and their associates.
  • borrow money on the fund’s behalf (certain limited recourse borrowing arrangements are allowed).
  • lend to, invest in or lease to a related party of the fund (including related trusts) more than 5% of the fund’s total assets. Related party lease for business real property is allowed if the transaction is carried out on arms-length basis.
  • enter into investments on the fund’s behalf that are not made or maintained on an arm’s length (commercial) basis.

SMSF benefits:

There are several key benefits managing your own SMSF as per following:

  • SMSFs provide a range of investment options including direct property, collectables and more.
  • In the SMSFs carefully considered tax strategies can help you grow super savings and reduce tax payments as you transition to retirement.
  • SMSFs allow multiple members to run a mixture of accumulation and pension accounts. You will be able to adjust your investment mix as it suits you.
  • SMSFs offer significant transparencies that allow trustees to align their personal goals with their investment decisions.
  • The more an SMSF grows, the more cost-effective it becomes, but the cost of running an SMSF will depend on the related investments any cost associated with engaging professional support.
  • Asset protection with a corporate trustee.
  • Greater flexibility on the timing of contributions, allocating earnings to particular members and implementing ‘reserves’.
  • Ability to borrow money via a Limited Recourse Borrowing Arrangement.
  • Capital gains tax relief opportunities.

Lost benefits operating an SMS:

There are also some lost benefits that need to be considered before making an SMSF establishment decision:

  • Access to compensation arrangements in the case of fraud or theft.
  • Access to a complaint mechanism such as the superannuation complaints tribunal.
  • Lack of dedicated fund managers looking after the fund. However, you can appoint a financial adviser to look after the SMSF investment portfolio.
  • No access to group insurance. However, you can obtain life and TPD insurance in the SMSF and premiums are tax deductible in the super fund.
  • Existing fund may be less complex, but the return on investment may be high.

JWH Tax & Super Accounting provides following assistance in relation to self-managed super funds:

  • Helping you understand how you can structure your fund.
  • Fund set up advice and other advisory services covered under the limited financial advice regime.
  • Providing the steps, you need to take to set up your fund and start operating it.
  • Explaining your obligations and responsibilities.
  • Ongoing accounting, tax, compliance, and limited advisory services.
  • SMSF auditing services.
  • General tax and accounting services for your personal and business needs
  • Directing you to more information.

Initial client consultation is free of charge. Please contact Jahan Hossain on 0421 925 663 / or jhossain@jwhca.com.au for a discussion.

Qualified Accountant