What is an SMSF?
A Self-Managed Super Fund (“SMSF”) is a way to save for your retirement.
SMSFs differ from other super funds because the trustees of the fund are in most cases also, the members. This means that the members of the fund are able to operate the SMSF for their benefit. However, they are also required to comply with the complex legislation which governs SMSFs.
What’s the point of using an SMSF?
SMSF’s can provide the following benefits for members:
- More control for members over their superannuation;
- Tax savings;
- Administration fee savings; and
- Asset protection.
What does the trustee of an SMSF do?
The trustee’s role includes being responsible for:
- holding assets for the sole purpose of providing benefits for your members (or their beneficiaries) upon their retirement;
- developing, putting in place and reviewing the SMSF’s investment strategy;
- keeping SMSF assets separate from your personal or business assets;
- preparing and keeping proper records, including financial statements, tax returns and audits among other things;
- not lending money from the SMSF to its members;
- not borrowing money except in limited circumstances in accordance with the legislation;
- ensuring assets known as in-house assets do not exceed 5% of the total SMSF assets, and
- only releasing money when the proper conditions of release are met.
Which assets can an SMSF invest in?
An SMSF can invest in a broad range of assets which are allowed under the SMSF’s investment strategy and which are in accordance with the legislation governing SMSFs. For example, assets invested in might include shares, term deposits, managed funds and property. As well as this, SMSFs can also hold alternative assets, such as antiques and artwork.
What can’t an SMSF do?
There are restrictions on the way that SMSFs operate. There are some assets that they cannot invest in or which are limited on how much of the fund is allowed to be invested in certain assets. For example, loans to members of the SMSF or their relatives are prohibited.
It is essential that an SMSF is operated for the sole purpose of providing retirement benefits to its members.
There can be very serious consequences where an SMSF fails to comply with its obligations under the legislation governing it. These include being taxed at 47% due to a loss of the concessional rate afforded to SMSFs, significant fines and in extreme circumstances prison for SMSF trustees who do the wrong thing.
Can anyone be in your SMSF?
Members of an SMSF can include family including your spouse, your children, even your parents. The maximum number of members for an SMSF is four.
While there is the potential to save money by sharing an SMSF, there is also the potential for more problems the more people are involved. We recommend that you carefully consider who to bring in as members of an SMSF.
What are the costs of running an SMSF?
SMSFs generally have a variety of expenses and fees to pay including the cost of investing such as broker fees, any trustee service fees, accounting costs as well as the costs associated with ongoing administration and annual auditing.
In general terms, it seems to be accepted that you need at least $200,000 to make the set up worthwhile.
Is an SMSF right for you?
Deciding on whether an SMSF is right for you depends on a number of factors. We recommend seeking professional advice from legal and financial specialists able to guide you through the decision making process.
Here at CRH Law, our team of experienced lawyers are well placed to help you to achieve the best possible outcomes for you and your family regarding your superannuation, giving you peace of mind for the future. If you are considering establishing an SMSF, contact us today for help in getting it right at the outset.
With a background in aged care management, Rebecca brings hands on experience and insight into our elder law and aged services areas as well as a thorough understanding of complex estate planning issues and disputes.