Self Managed Superannuation Funds
Thinking about an SMSF?
Like other superannuation (super) funds, self managed super funds (SMSFs) are a way of saving for your retirement. The difference is that a SMSF is run by you – giving you greater control of the investment of your retirement savings. As trustee, you decide how the fund operates and the investment strategy whilst taking advantage of the tax benefits offered to super funds.
What are the advantages of an SMSF?
- Control over design and operation
- The fund can go on after your death
- Cost savings
- Tax concessions
- Advantages for small business
What are the disadvantages of an SMSF?
- Limited ability to diversify investments
- It can be expensive
- No access to Superannuation Complaints Tribunal
What are the restrictions of an SMSF?
Investments must be for the ‘sole purpose’ of providing retirement benefits for the members of the fund. Members, relatives or associates of the trustees must not gain any immediate benefit from the fund’s assets or activities. For example, any property owned by the fund cannot be used by the members or their families, even if rented out at a market rental.
What assets do SMSFs invest in?
SMSF investment portfolios can include many investments including:
- Cash management accounts.
- Term deposits.
- Managed funds (Australian and international).
- Listed Australian shares.
- Listed unit trusts (property, investment).
- Listed investment companies.
- Overseas listed shares.
- Residential property.
- Commercial property.
- Industrial property.
- Property purchased with borrowed funds (limited recourse borrowing).
- Property partnerships with non-related parties.
- Shares in private companies with non-related parties.
- Options, warrants, CFDs and other “exotic” investments. However please note that these assets are permissible only with the proper investment strategy.
Is a Self Managed Superannuation Fund right for me?
- Generally, a minimum investment amount of $200,000 is required to justify the set costs associated with establishing a SMSF. Many costs remain the same regardless of the balance in the fund so a smaller balance will result in higher costs as a percentage of the invested amount.
- Ideal if you like flexibility and control over your investments.There are strict rules around how a SMSF can invest so it’s recommended you seek professional advice if you are not comfortable doing this yourself.
- You need to spend sufficient time managing your own fund. Each trustee is responsible for the decisions and operation of the fund, including compliance and setting the fund’s investment strategy.
- Annual audits are required and they need to be conducted by an approved auditor.
Setting up your Self Managed Super Fund
Establishing your fund correctly from the start is vital to ensure that it runs smoothly. With the right advice and expert guidance, you can be confident that your fund will be set up correctly and all legal requirements taken care of. Establishing your SMSF includes:
- Establishing the Trust Deed.
- Appointing the trustees and agreeing how the assets of the Fund will be held and managed.
- Registering your fund with the ATO, establishing a Tax File Number (TFN) for the fund as well as an Australian Business Number (ABN) if it is a Corporate Trustee.
- Establishing a cash account, in the name of your SMSF to accept your super contributions and to pay the running expenses of your fund.
- Rollover your existing Super that may be with your Industry fund or Corporate Super fund to your newly established SMSF. Organise to have the money transferred to the bank account in your SMSF’s name.
- Invest your Super – once you have rolled over your Super, you can begin investing it.
Can an SMSF borrow to invest?
Yes! It’s quite common for investors to find they are a little short of the cash needed to buy an asset, particularly high cost assets, such as property.The good news is that SMSFs are permitted to borrow money from a third party lender under what’s known as a Limited Recourse Borrowing Arrangement.
SMSFs aren’t for everyone and you should think carefully before deciding to set one up. It’s a major financial decision and you need to have the time and skills to do it. You should certainly seek professional advice.