What is SMSF & is right for me?

This is not financial advice. Information below is designed to provide general information only and has been prepared without taking into account any persons objectives, financial situation or need. The information contained on this website is not, nor is it intended to be, professional advice. Such information is a summary only and should not be relied upon as a substitute for professional advice regarding your own situation. If you need help making a decision Contact us and we will arrange for a financial planner to contact you.

Thinking about self-managed super

Like other superannuation (super) funds, self-managed super funds (SMSFs) are a way of saving for your retirement. The difference between an SMSF and other types of funds is, generally, that members of an SMSF are the trustees. This means the members of the SMSF run it for their own benefit.

There are strict rules that govern how you can use a self-managed super fund (SMSF), how you can invest your money and when you can access it.

Before deciding whether to manage your own super, think about the following. [MORE INFO]

Consider your options and seek professional advice

If you're not confident you can get a better result from an SMSF, you may be better off with a different type of fund.

Make sure you have enough assets, time and skills

To establish a competitive fund you need considerable super savings available to invest and be willing to put your own effort into managing the fund. At times you might need to consult with professionals and advisers, which adds to the cost of managing your fund.

Understand the risks and laws

All financial decisions carry risk, so it's important to think carefully about your investment options to balance the level of risk against the level of financial return. You also need to be sure your super investments are legal.

Setting up an SMSF

When you set up an SMSF you become a trustee (or the director of a company that is a trustee).

What it means to be a trustee

A trustee is responsible for running the fund and acting in the best interests of the members. As a trustee you need to manage the fund and its investments separately from your own affairs.

How your SMSF is regulated

We administer the relevant super laws for SMSFs, work with you to help you meet your obligations and verify compliance, but we don't provide financial or investment advice.

Laws, rules and consequences

You're also responsible for running the fund according to its trust deed and the super laws. If you don't, the tax concessions that normally apply to your super may be affected and you may face penalties. Your fund must be run for the sole purpose of providing retirement benefits for the members.

Steps to setting up an SMSF

Your SMSF needs to be set up correctly so that it's eligible for tax concessions, can pay benefits and is as easy as possible to administer. Here are the steps to setting up your fund:

Managing your fund's investments

If you set up an SMSF you become a trustee of the fund. This means you'll be responsible for managing your SMSF according to its trust deed and the laws and rules that apply to SMSFs. The key principle is that you run your SMSF for the sole purpose of providing retirement benefits to fund members.

You need to manage your fund's investments in the best interests of fund members and in accordance with the law. Your investments must be separate from the personal and business affairs of fund members, including yourself.

One of your key responsibilities as a trustee is managing your fund's investments. Your investment decisions should be designed to protect and increase your members' benefits for retirement. [MORE INFO]

Your investment strategy

You invest according to your written investment strategy. This sets out your fund's investment objectives and how you plan to achieve them. It takes into account the personal circumstances of all the fund members, including their age and risk tolerance. Your investment strategy will help you maintain the right mix of investments for your fund and its members.

Restrictions on investments

Being a trustee of an SMSF gives you the flexibility to choose the investments for your fund, but there are some restrictions on how you invest and what you can invest in. Make your investments on a commercial, 'arm's length' basis and don't buy assets from, or lend money to, fund members (or other related parties). Generally, your fund can't borrow money.

Ownership and protection of assets

You need to manage your fund's investments separately from the personal or business investments of members, including yourself. This includes ensuring that the fund has clear ownership of its investment assets.

The sole purpose test

The fund's investments are for the sole purpose of providing retirement benefits to members - there can't be any pre-retirement benefits to members or related parties (such as letting members use an investment asset)

Investing in collectables and personal use assets

From 1 July 2011, all collectables and personal use assets purchased by SMSFs will have to comply with tightened legislative standards.

Accepting contributions

You can accept money contributions for your members from various sources but there are some restrictions, mostly depending on the member's age and whether they've exceeded the contribution caps. Generally you can't accept an asset as a contribution from a member, though there are some exceptions.

A contribution is a payment made to your fund in the form of money or an asset other than money (called an 'in specie' contribution). Provided the governing rules of your fund allow it, your SMSF can generally accept:

  • employer contributions
  • personal contributions
  • salary sacrifice contributions
  • super co-contributions
  • eligible spouse contributions.

You need to properly document contributions and rollovers - including the amount, type and breakdown of components - and allocate them to the fund members' accounts within 28 days of the end of the month in which you received them. [MORE INFO]

Allowable contributions

There are minimum standards for accepting contributions. This is to ensure contributions are made for retirement purposes only. Whether a contribution is allowable depends on:

  • the type of contributions - for example, you can accept mandated employer contributions, such as super guarantee contributions from a member's employer, at any time
  • the age of the member - for example, you can't accept non-mandated contributions from members aged 75 or over
  • whether the member quotes their TFN
  • whether the member has exceeded the fund-capped contributions - these are indexed annually.

These are minimum standards - the trust deed of your fund may have more rules around accepting contributions.

In specie contributions

In specie contributions are contributions to your fund in the form of an asset, rather than money or cash.
Generally, you can't intentionally acquire assets (including in specie contributions) from related parties of your fund. However, there are some exceptions to this rule, such as listed securities and business real property acquired at market value.

Rollovers and transfers

A rollover is when a member transfers some or all of their existing super to your fund.

For more information refer to Running a self-managed super fund (NAT 11032).

Reporting, record keeping and administration

As a trustee you'll have a number of administrative obligations - for example, you'll need to arrange an annual audit of your fund, keep appropriate records and report to us on the fund's operation.

As a trustee of your SMSF you need to:

  • appoint an approved auditor to audit your SMSF
  • lodge your SMSF annual return each year by the due date, providing all the information required and paying the supervisory levy
  • lodge an accurate Rollover benefits statement (NAT 70944) when rolling benefits into other funds
  • keep comprehensive records
    • minutes outlining investment decisions and how decisions are made
    • the transactions of your SMSF
    • reasons for decisions on the storage of collectables and personal use assets
    • annual operating statements and annual statements of your SMSF's financial position
    • who the trustees of your SMSF are and their consent to act as trustees (trustee declarations)
    • copies of returns and information provided to members
    • required income tax and deduction documentation (including any actuary certificates)
  • notify ATO of any change of details for the SMSF (for example, a change in trustee or members).

Accessing your super

Accessing the super in your SMSF to pay benefits is generally only allowed when a member reaches what's called their 'preservation age' and meets one of the specified conditions of release - for example, they retire. There are very limited circumstances, such as death or terminal illness, where a member's super can be accessed before this. There are significant penalties for unlawfully releasing super benefits.

The super in your fund is intended for your members' retirement and generally can't be accessed until then. [MORE INFO]

Preserved and non-preserved benefits

Most of the super held in your fund will be in the form of preserved benefits. These must be preserved in the fund until the law and your fund's trust deed allows them to be paid.

Preservation age

Preservation age is generally the age that a person can access their super benefits. It ranges from 55 to 60 years of age depending on the person's date of birth.

Conditions of release

Voluntary cashing of preserved benefits generally depends on the member reaching their preservation age and meeting one of the conditions of release - for example, retirement.
Compulsory cashing of benefits is required only if a member dies. Your member's benefits need to be paid out as soon as possible after the member's death.

Early access to benefits

There are a few conditions of release that permit early access to super benefits before a member reaches their preservation age, but these occur only in limited circumstances, such as terminal illness or permanent incapacity.

Paying benefits

Payment of benefits is usually as a lump sum or an income stream (that is, a pension).

Understanding tax and SMSFs

The income of your SMSF is generally taxed at a concessional rate of 15%. To be entitled to this rate your fund has to be a 'complying fund' that follows the laws and rules for SMSFs.

SMSFs are subject to income tax but receive concessional treatment, provided they are complying funds. A complying SMSF's assessable income is generally taxed at a rate of 15%, while for a non-complying fund the rate is 45%. The most common types of assessable income for complying SMSFs are:

However, certain types of SMSF income are taxed at different rates:

A complying SMSF is entitled to claim deductions for expenses, such as the supervisory levy and auditor fees, that are incurred in gaining or producing assessable income.
SMSFs must register for GST if they have a GST turnover of $75,000 or more. Most SMSFs don't have this much GST turnover and so don't need to register.

Winding up an SMSF

At some point you may need to wind up your SMSF. This could happen if all the members and trustees have left the SMSF or all the benefits have been paid out of the fund

To wind up your SMSF you need to: