SMSFs (Self-Managed Super Funds) are sometimes referred to as “Do It Yourself” (DIY) super funds. They are retirement funds available in Australia and are similar to other superannuation funds in that SMSFs invest contributions made by members, provide benefits to members when they retire and provide death benefits to beneficiaries in the event of a member’s death.
The main difference between a SMSF and other types of superannuation funds is that the members of a SMSF are also the trustees, or directors of a corporate trustee. This means they are required to prepare and implement an investment strategy for their fund, accept contributions and manage the payment of benefits.
SMSFs also provide a broader investment choice than other super funds, with options such as direct property, managed investments and direct shares included.
The members of a SMSF must appoint approved auditors, and may also choose to involve taxation agents, accountants and financial advisors as well as administrators. However, the ultimate legal responsibility for the fund’s ongoing compliance rests with the individual trustees.
WHAT ARE THE REQUIREMENTS OF A SMSF?
- A SMSF must be maintained for the sole purpose of providing retirement benefits to member. Investments must be entered into with a view to achieving a commercial rate of return, not for lifestyle or private purposes
- A SMSF must have fewer than five members
- All members must be trustees
- If your SMSF is a single member fund, you will need to appoint a company as trustee or a second person to act as an individual trustee
- No member of the fund can be an employee of another member of the fund, unless those members are related
- No trustee of the fund can receive any remuneration for services as trustee
- A SMSF can not lend money or give financial assistance to a member
- The SMSF can not acquire an asset from a member of the fund, or any other person related to the trustee, with the exception of listed shares, managed funds, and business real property.
- SMSFs are prohibited from borrowing. There are some limited exceptions.
- Trustees are required to set out the fund’s objectives and to formulate an investment strategy to show how those objectives will be met. This must be in writing and regularly reviewed
WHAT ARE THE ADVANTAGES OF SMSFs? Advantages include:
- Increased control over your retirement funds and how they are invested
- Wider investment choice than public offer funds
- Your SMSF can move with you from job to job, and from generation to generation
- Affords opportunities for estate planning and benefit payments
ARE THERE ANY DRAWBACKS? Drawbacks include:
- Each trustee bears a high degree of responsibility to ensure all trustee duties are exercised in the best interest of fund members
- There is a risk of tax penalties for non-compliance, so it is necessary to have sufficient knowledge and expertise
- Running a SMSF can be time consuming and demanding
- SMSFs incur a range of additional costs, eg tax and regulatory return, administration, auditing of accounts, supervisory fees