What You Need to Know About Self-Managed Superannuation Funds

Self-managed super funds, or SMSFs, are one of the seven types of superannuation funds available to Australians. If you’re considering which type of super fund is best for you, be sure you know what SMSFs are all about.

When choosing your super fund, it pays to know your options. If you think a SMSF is for you, then make sure you get all the information about this popular type of superannuation fund that many Australians choose for their retirement and their financial future.

What is a SMSF?

A SMSF is a fund that allows you to manage your own superannuation investments. One of the main differences between a SMSF and other types of super funds is that the members of the fund are generally also the trustees of the fund. SMSFs require careful financial and investment planning and are not for everyone. They need to be accurately and actively managed in order to get the best return on your retirement investments.

Setting up a SMSF

When you choose to set up a SMSF you are the trustee of the fund. You take on the legal and financial responsibilities of the fund, running it in accordance with the Australian Tax Office (ATO). Among other things, this means the fund must be run separately from your own personal affairs. The ATO regulates all SMSFs to ensure trustees meet their legal obligations, duties and responsibilities. What the ATO does not do is offer financial advice regarding superannuation investments for your retirement.

As the trustee of your own SMSF, you are responsible for ensuring the fund runs according to Australian super laws and in accordance with the fund’s trust deed. The SMSF must be set up and administered in such a way as to be solely designed for the purpose of providing financial retirement benefits for its members.

When setting up your SMSF, there are 10 general steps to take to set up the fund. These are as follows:

• Seek advice. Find a superannuation specialist who focuses on SMSFs to help you set up your fund.
• Identify its structure. You need to set out the structure of your SMSF.
• Check your eligibility. Be sure to check out whether you are eligible to act as a trustee of a SMSF. With most SMSFs, all members are required to be trustees. Age, criminal convictions, previous bankruptcy or insolvency may prevent someone from being a trustee of a SMSF.
• Check fund residency. In order to receive tax benefits, your SMSF needs to comply with ATO residency regulations throughout the financial tax year. Funds that don’t comply with residency have their investments and income taxed at a significantly higher tax rate.
• Create the trust deed. The trust deed is a legal document outlining the structure and management of the fund.
• Appoint trustees. All trustees are required to sign a legal declaration identifying they agree to comply with the trust deed and all other legal obligations. All trustees are held legally responsible for the running, management and compliance of the fund.
• Record tax file numbers. Tax file numbers for each member of the SMSF must be recorded.
• Open a bank account. A bank account is required to accept member’s contributions and manage funds and income from investments.
• Complete ATO registration. The next step is to register your SMSF with the ATO. This is done once the trustees have signed and the fund has been legally established.
• Plan your investment. The final step in setting up your SMSF is to write out your plan for your fund investment. Having this in writing ensures your fund complies with Australian super laws.

SMSFs and Taxation

For SMSFs that comply, the tax rate is set at 15per cent. For those funds that don’t comply with residency rules and other ATO regulations and super laws, the tax rate is significantly higher. It is very important to understand the taxation on your particular fund.

Managing and Accessing Your SMSF

A SMSF must be managed in accordance with Australian super laws and in the best interest of all its members. The fund must always be kept clearly separated from any member’s personal or business investments or affairs. In general, members can access their super funds when they meet certain criteria, such as when they reach a certain age or retire. Any member taking benefits prior to meeting certain criteria are likely to face severe legal consequences.

About the Author: Jeremy North has been working with the ATO for several years. He is a regular contributing writer who enjoys helping those who are looking for more information about setting up their own SMSF.