SMSF or Self Managed Super Fund is a fund designed to hold and distribute retirement benefits for its members. These funds are controlled by SMSF trustees/members and can have no more than four members.
Here are some of the important facts that you need to know about SMSF.
1. What is SMSF?
SMSF or Self Managed Super Fund is a fund designed to hold and distribute retirement benefits for its members. These funds are controlled by SMSF trustees/members and can have no more than four members.
2. Why use an SMSF?
The main benefit of SMSFs:
- You have control over where your super money is invested
- Help you create additional tax efficiencies and save on administration fees
3. What is the trustee’s role?
The trustee is responsible for:
- establishing the trust deed
- setting and maintaining the fund’s investment strategy
- finalising reporting obligations
- complying with APRA and Taxation Office laws and regulations
Note that trustees who are found to be in breach of these duties can be fined and, in extreme cases, face criminal penalties
With an SMSF, there can be individual member trustees or a company acting as a trustee.
For individual member trustees, every member must be a trustee and all trustees must be members.
Where there is a company acting as trustee, all company directors must be members and all members must be directors.
4. How does an SMSF work?
An SMSF works much the same as a normal retail superannuation fund.
- It accepts contributions from members and invests and manages those contributions and subsequent earnings.
- It is responsible for paying tax and making payments to members who are retired (i.e. lump sums and pension payments.)
- There are also administration and accounting tasks which need to be completed to ensure all members records are correct, the correct taxes are paid, and the fund remains compliant with all relevant laws and regulations.
5. Which assets can an SMSF invest?
An SMSF can invest in any assets allowed for by the fund’s investment strategy. These usually include:
- managed funds, shares and property
- cash and fixed interest
- business real property
6. What can’t an SMSF do?
There are restrictions on what SMSFs are allowed to do. There are some types of assets in which an SMSF cannot invest and or are limited on how much of the fund can be invested in them. Loans to members or relatives are not allowed.
The fund must be run to meet the sole purpose of providing retirement benefits for members.
An SMSF which contravenes the regulations risks being declared non-complying and losing its concessional tax status. The result is all contributions and earnings being taxed at 47% instead of at up to 15%.
7. Who can be in your SMSF?
The fund can include relatives such as your spouse, children and/or parents (up to a total of four members). The main benefit is that fixed costs are shared by more members, thus creating additional cost savings.
8. What are the costs of running an SMSF?
An SMSF may have to pay fees for investments (e.g brokerage), trustee services, accounting, administration and audits.
In general terms, an SMSF can be cheaper than a retail fund if the fund has more than $200,000 invested.
9. Is an SMSF right for you?
It could be if you and/or your spouse have at least $200,000 to transfer into an SMSF and you think the advantages of such a fund outweigh the disadvantages.
These are the main facts that you need to know if you are considering SMSF for your superannuation. If you want to learn further, our HTA Wealth adviser Ben Seeger has you covered. Just contact him at (03) 9810 3666.
Next week, we will discuss about the advantages and disadvantages of having SMSF!
Stay tuned and subscribe!
