Self-Managed Superannuation Funds

What are self-managed superannuation funds?

A self-managed superannuation fund (SMSF) is your own private superannuation fund that you manage and control. They are sometimes referred to as DIY funds – although they are rarely able to be a completely Do-It-Yourself arrangement.

You may have up to 4 members in the fund and both you and your employer can contribute to the fund.

There are many benefits to starting your own SMSF. However, it is an onerous responsibility and you should understand your responsibilities before you commence.

Why set up a self-managed super fund?

There are many advantages to setting up a self-managed superannuation fund. The main advantages are outlined below:

• You have control over the fund, including making investment decisions within the fund. This allows you and your financial adviser to tailor an investment strategy that suits your circumstances and risk profile.
• Having a SMSF gives you a wide range of investment options, such as direct shares and direct property, including property used by your business. In some circumstances, the fund can purchase assets from members of the fund.
• In many cases, particularly for larger amounts of money, a self-managed super fund can be cheaper to run than investing in retail super funds.
• A SMSF can be an effective estate planning tool. For example, you may have a property in your fund that you wish to keep and pass on to other family members. By using a SMSF, the property does not have to be sold if you die. Instead, it can be used to pay a pension, or it can be paid out as a lump sum payment.

What are my obligations?

A member of a self-managed super fund must also be a trustee of the fund (or a director, if a corporate trustee is used). If you decide to establish a SMSF, it is your responsibility as trustee of the fund to ensure that the fund complies with the law at all times. It is therefore important that you understand your obligations and seek professional help if necessary.

When establishing and maintaining a self-managed super fund you will need to look at a broad range of responsibilities, which include:

• Appointing trustees,
• Arranging a suitable trust deed,
• Lodging appropriate documents with the Tax Office,
• Setting an investment strategy for the fund,
• Investing the assets of the fund,
• Maintaining proper records for the fund,
• Preparing annual accounts,
• Having the accounts audited,
• Submitting annual returns to the ATO, and
• Ensuring that the fund at all times complies with the relevant legislation.

There are severe penalties for trustees who fail to ensure that a super fund is properly administered. Therefore, it is advisable that, where necessary, you obtain the services of professionals who can assist you in ensuring the compliance of the fund.

What are the restrictions?

A SMSF must be maintained ultimately to provide to its members on retirement or death. It cannot be used as a means to gain a benefit before retirement.

As a general guide, a SMSF cannot:

• Carry on a business,
• Acquire an asset from a member, relative of a member or an entity related to a member (except for business property, listed securities and certain other investments),
• Lend money to a member or relative of a member,
• Lease an asset to a member, other than business property,
• Invest more than 5 per cent of its assets in a private company or trust controlled by a member.

This means that you can not transfer your residential investment property into a SMSF. Your SMSF can however purchase an investment property from the open market, but you would not be allowed to rent it to yourself or a family member.