A Self Managed Super fund (otherwise known as a SMSF, or DIY Super fund) is a type of superannuation fund where you (and up to 3 other members of the fund) are also the trustee(s) of the Fund, and hence have complete control over its operation. With the increasing popularity of these funds, the purpose of this article is to provide prospective trustees with a simple overview of how DIY Superannuation works, and what’s involved.
So what is a Self Managed Super Fund?
A superannuation fund will be a SMSF if it has the following features:
- it has no more than four members
- unless they are related, no member of the fund can be an employee of another member of the fund,
- each member is also a trustee, and no trustee is able to receive any remuneration for their services as a trustee, or;
- if the fund uses a company to act as trustee, then each member of the fund must be a director of that company, and the company must not receive any remuneration for its services as a trustee. No director of that company can receive any remuneration for their services as a director in relation to the fund.
Employees cannot be in the same self managed superannuation fund as an employer member, unless they are related. It is possible to have a self managed superannuation fund with only one member, however there are a few extra rules around this.
Getting started
- Acceptance of responsibility – before setting up a new SMSF, you need to obtain information (via the ATO booklets) on what your responsibilities are as a SMSF trustee. If you decide that the responsibilities are too much for you, then do not proceed to setup a SMSF. If however, you understand and accept these responsibilities and are happy to comply with them at all times, then you can proceed to the establishment phase.
- Establishment – once you’ve decided that a SMSF is for you and your happy to take on the role of trustee and all that it entails, then the next step is to setup your new DIY super fund. This involves a number of items, including appointing trustees, obtaining a trust deed for the fund, and completing the ATO application form to register as a superannuation entity. This is all usually provided in a SMSF setup pack via an adviser, accountant, or an online provider.
- Setup a separate bank account – importantly, all SMSF monies must be kept separate from the personal monies of members. Therefore, a separate bank account, in the name of the trustee(s), with the name of the super fund as an account designation, must be established to accept rollovers and contributions.
- Accepting contributions & rollovers – once your bank account has been setup, you can now accept a rollover of your super monies from your previous super fund. You can also make contributions into your fund, albeit mindful of the different types of contributions that exist and the rules around them.
Ongoing management of the fund
Once you have your fund and bank account established, and have either rolled in your super monies or made a contribution, you now head into the ‘ongoing management’ phase of your fund. There are two major items
Investment strategy – whilst formulating and implementing an investment strategy for your SMSF is a regulatory requirement, its also the most important aspect of a super fund (i.e. investing to grow your money for retirement). Your investment strategy sets out the investment objectives of the fund, and describes the investment methods you will use to meet these objectives.
Annual administration, tax return, and audit – this involves keeping accurate accounting records to explain the transactions and financial position of your SMSF each year, trustee minutes on all major decisions, lodging the fund income tax and regulatory return, and having the fund independently audited each year. Normally a SMSF admin service provider will take care of these items for you, however you will need to provide them with all the paperwork regarding the transactions of your fund from throughout the year, and answer any questions they may have on specific transactions.