WHAT IS A SELF-MANAGED SUPERANNUATION FUND? |
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A Self-Managed Superannuation Fund (SMSF) is a trust where money or assets are held and managed on behalf of up to four members to provide future retirement benefits. Subject to certain exceptions, all members of the Fund must be Trustees of the Fund or directors of the Fund’s corporate trustee.
The rules of every SMSF are set out in its trust deed, the operation of which is subject to Superannuation law. If a SMSF has more than four members at any time, it will be in breach of Superannuation laws and cease to qualify as a SMSF. It may lose its concessional tax treatment as a result.
A SMSF can invest in a wide range of assets (subject to some restrictions) including investment properties, shares and managed investments. A SMSF must invest in accordance with its documented investment strategy.
The Australian Taxation Office (ATO) oversees the regulation of SMSFs. The Superannuation Industry (Supervision) Act 1993 and Regulations (SIS) and related legislation govern Australian superannuation funds, including SMSFs, by:
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setting strict rules that apply to superannuation funds, over and above the rules in the Fund’s trust deed – the rules are intended to increase the security of member benefits |
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ensuring tax concessions are given only to funds (established for retirement income purposes) that comply with Superannuation laws |
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The trustees of the fund may appoint accountants, investment advisers or administrators to assist in the management of the fund. However the ultimate responsibility for the management of the fund remains with the Trustees.
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THE ADVANTAGES OF A SELF-MANAGED SUPERANNUATION FUND |
Control |
The Trustees decide on the Fund’s investment strategy and choose what the Fund’s assets are invested in, and how and when the Fund’s assets are invested. The members may give the Trustees directions about how their share of the Fund is to be invested in relation to the investment strategy. The Trustees are also responsible for monitoring the ongoing performance of the Fund’s investments. |
Flexibility |
The Fund’s investments can be tailored to suit the members’ specific needs before and after retirement. The Trustees have the flexibility to make changes to the Fund’s investments quickly and easily, and the Fund may pay a pension to the member on their retirement without the need to sell down assets. |
Investment Choice |
Self-Managed Superannuation Funds (SMSF) are (subject to certain limitations) generally able to invest in an extensive range of investments available to Australian investors including investments not typically available in other superannuation funds such as investment properties, direct Australian and international shares and direct fixed interest. |
Longevity And Estate Planning |
SMSFs have an unlimited life span and may continue to provide benefits into the future for the members and their dependants, subject to applicable Superannuation laws. |
Contributions |
Subject to Superannuation laws, SMSFs can accept the following types of contribution: |
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personal |
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employer |
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spouse |
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eligible termination payments (ETPs) |
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superannuation guarantee vouchers |
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In-Specie Contributions |
Subject to the investment rules, a member may be able to transfer certain assets that are currently held in their name into their SMSF in place of cash contributions. These transfers may be subject to stamp duty and tax. |
Cost Savings |
Depending on the individual circumstances of the members, a SMSF may provide cost savings compared with other types of superannuation funds. |
THE TRUSTEE'S RESPONSIBILITIES |
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Trustees of Self-Managed Superannuation Funds (SMSFs) are ultimately responsible for the running of their fund. It is imperative that each trustee understands the duties, responsibilities and obligations of being a Trustee. Rules exist to ensure the protection of the assets in the fund until they are needed at retirement. There are significant penalties imposed on trustees who fail to perform their duties.
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Key Responsibilities |
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A trustee of an SMSF must act in accordance with:
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the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA); |
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the clauses of the superannuation fund trust deed; and |
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other general rules, for example those imposed under tax law and trust law. |
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The SISA Covenants |
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SISA contains covenants or rules that impose certain requirements on trustees and are deemed to be included in the trust deed of every regulated fund. These covenants reflect the duties imposed on a trustee under trust law in general. They require trustees to:
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act honestly in all matters; |
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exercise the same degree of care, skill and diligence as an ordinary prudent person; |
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act in the best interest of the fund members; |
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keep the assets of the fund separate from other assets (eg the trustee’s personal assets); |
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retain control over the fund; |
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develop and implement an investment strategy; |
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allow members access to certain information. |
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USEFUL LINKS |
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The superannuation website for the Australian Taxation Office provides various fact sheets that relate specifically to Self-Managed Superannuation Funds (SMSF).
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Setting up a Self-Managed superannuation fund
www.ato.gov.au/super/content.asp?doc=/content/19105.htm
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Duties of Trustees
www.ato.gov.au/super/content.asp?doc=/content/19106.htm
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Investment strategy and Investment decisions
www.ato.gov.au/super/content.asp?doc=/content/19109.htm
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APRA is the prudential regulator of banks, insurance companies, superannuation funds, credit unions, building societies and friendly societies.
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Superannuation Circulars
www.apra.gov.au/Superannuation/Superannuation-Circulars.cfm
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The following are links that you may find useful in relation to Self-Managed superannuation funds:
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The superannuation website for the Australian Taxation Office provide various fact sheets that relate specifically to Self-Managed superannuation funds.
www.ato.gov.au/superprofessionals
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The ASIC website provides financial tips and safety checks for investors and consumers of financial products, including superannuation.
www.asic.gov.au
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Winding up a Self-Managed super fund
www.ato.gov.au/super/content.asp?doc=/content/30280.htm&mnu=2624&mfp=001/006
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