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Self Manage Superannuation Funds

Generally, as an Australian resident, you can choose to run your own Self Managed Superannuation Fund (SMSF).  There are many advantages and disadvantages of establishing a SMSF including:

Advantages
  • more control over retirement assets with the ability to have more transparent investment strategies
  • greater flexibility is possible in the investments that a SMSF may invest in including business real property
  • a member may commence a pension while retaining the assets that were held pre-pension
  • greater flexibility is possible in the overall management and administration of the fund
  • greater control and flexibility over the tax position of the fund
  • excellent estate planning benefits
  • flat fee structure may mean lower fees to operate; fees more transparent

Disadvantages:
  • costs of running a SMSF may be greater than the cost of public offer superannuation funds, particularly when the fund is starting out
  • increased time needs to be set aside for the ongoing management of the fund
  • the Trustees and Directors of Corporate Trustees are personally liable for any actions of the fund


Establishment & Responsibilities

Upon creation of an SMSF, a trustee must be established to govern the fund.  The trustee can take the form of either one or more individuals or a company.  The trustee or directors of the company are ultimately in control of the fund and hold and invest the fund’s assets for the benefit of the members.

A trustee’s main role is to:
  • act in the best interests of all fund members when making decisions
  • manage the fund separately from personal non super affairs
  • ensure the money in the fund is only accessed when conditions of release (“retirement”) are met
  • ensure that the fund meets the ‘Sole Purpose Test’.  This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement

It is important trustees understand their duties, responsibilities, and obligations of being a trustee.  As a trustee of an SMSF, one needs to act according to:
  • the fund’s trust deed
  • the provisions of the super laws, tax laws and trust laws

Investment

Superannuation laws place rules and regulations on investing within an SMSF in order to protect fund members by making sure fund assets are not exposed to undue risks.  Specific rules and restrictions trustees need to be aware of include:
  • an investment strategy needs to be documented before investing, addressing:
    • diversification (investing in a range of assets and asset classes)
    • the risk and likely return from investments
    • the liquidity of fund’s assets (how easily they can be converted to cash to meet fund expenses)
    • the fund’s ability to pay benefits
  • investments need to be held in the name of the actual trustee of the fund
  • the fund cannot lend money or provide direct or indirect financial help to a member or a member’s relative

Contributions & Rollovers

Trustees must know the rules for accepting contributions and rollovers.  Make sure any contributions and rollovers are:
  • properly documented, including the amount, type and breakdown of components
  • allocated to the correct member’s account

Accessing Benefits 
  • trustees must know the rules for paying benefits to members, when and how they can be paid
  • a member can only access all or part of their super benefits if they satisfy one of the conditions of release specified in the super laws.  Member’s benefits will be classified as one or more of the following:
    • preserved benefits (condition of release must be met)
    • restricted non-preserved benefits (condition of release must be met)
    • unrestricted non-preserved benefits (may be paid upon demand by the member)
  • The only circumstance where compulsory cashing of benefits is required is when a member dies.  Member’s benefits need to be paid out as soon as possible after the member’s death
  • If the fund’s Trust Deed allow it, trustees can generally pay a super benefit as:
    • a lump sum
    • an income stream (pension or annuity)
    • a combination of both

Taxation & Auditing
  • a SMSF is required to lodge an annual return each year with the Tax Office
  • trustees of an SMSF are required to appoint an approved auditor to audit the fund each year to:
    • examine the fund’s financial statements
    • assess the fund’s overall compliance with the super law
  • In certain circumstances, trustees must appoint an actuary and obtain an actuarial certificate if the fund starts to pay a pension to a member.  An actuary works out:
    • whether the fund can meet its pension liabilities
    • what assets are being used to fund pension payments  

If you would like to discuss how we can assist you in achieving your needs, goals and objectives please contact us and speak to one of our advisers.