What is a self managed super fund (SMSF)?
We’re glad you asked! A self managed super fund is a private superannuation fund that you manage yourself. That means that you decide where your money is invested, and that you’re responsible for complying with super and tax laws.
What can I invest in with my SMSF?
Managing your own super fund can give you access to a broader range of investments on top of the usual shares, term deposits, managed funds and property. With Selfmade, you can take advantage of extra investment options such as exchange traded funds, mFunds and warrants.
Why choose an SMSF over a regular super fund?
There are pros and cons to both SMSFs and industry super funds.
SMSFs provide more options and allow you to have direct control over your money. This can make them suitable for people who have quite a bit of super and understand finance and tax laws well.
By contrast, industry super funds usually offer simplicity and lower fees – plus the ability to support your industry.
Is an SMSF right for me?
Managing your own super allows you to control exactly where your savings go, but, unlike going through an industry super fund, it requires more monitoring and management on your part.
This is a big decision to make, and one that should be made carefully, with discussion and advice from your family and financial advisers.
What regulations exist for SMSFs?
What’s the difference between an individual and a corporate trustee setup?
When it comes to choosing between an individual and corporate trustee setup, there are a few key differences to consider.
How many members can I have in an SMSF?
The maximum number of members you can have (in an individual or corporate trustee setup) is four.
What are the risks of having an SMSF?
Risks of having an SMSF
A self managed super fund (SMSF) is just that – self managed by you (the trustee). This gives you great control in terms of investments. However, it also carries unique risks that you should be aware of before starting.
Investments are your responsibility
All investments carry risk. In a public superannuation fund, you are usually given a choice between a number of standardised investment options. As an SMSF trustee, you will be responsible for choosing investments, carrying them out, and managing their performance. As a trustee, you can seek investment advice to help you if you need to.
Costs might not be justifiable for small SMSF balances
Unlike public superannuation funds, SMSFs come with an initial fixed establishment cost and have ongoing fixed costs. If the SMSF members have a low balance in total, the fixed costs of the SMSF might represent a high proportion of the total value of the fund.
Possible loss of insurance
Many members maintain insurance through their public superannuation fund. If you leave a public superannuation fund or maintain a low balance in it, you may lose the included insurance cover, such as life, total and permanent disablement and income protection. You will need to consider whether you’ll obtain insurance within your SMSF and/or in your personal name.
Tax rules and superannuation law
As the trustee of an SMSF, you must follow the rules and laws set out by government bodies. The Australian Tax Office regulates tax and superannuation compliance laws for SMSFs. This applies to every trustee, even the ones who think of themselves as ‘passive’. While SMSF trustees typically delegate lodgement of tax returns and other tasks to a tax agent – such as an accountant, Selfmade or a partner of Selfmade – ultimate responsibility still lies with the trustee of the SMSF.
Time, skills and obligations
You must be confident that you have the time and skill to fulfil your SMSF obligations. Even if you outsource some aspects of managing the fund, you will remain ultimately responsible for complying with your obligations.
Compliance and regulations
Compliance risks include the negative consequences that can arise if the SMSF trustee deliberately or inadvertently breaks regulatory laws. For example, there are prohibitions and restrictions around investing in a related party and in collectibles. Also, SMSFs are not allowed to lend money to members or relatives of members. Under the sole purpose test, the SMSF must broadly be maintained for the sole purpose of providing retirement benefits.
Lastly, money and assets in super can’t be withdrawn as benefits until a legal condition of release is met, such as reaching the age of 65. The obligations of SMSF trustees are discussed in greater detail in the ATO’s trustee declaration, which all new SMSF trustees must sign and keep.
Legal disputes include those between:
- Members and the trustee
- Beneficiaries of the fund and the trustee, especially if a member passes away.
Disputes can arise over the management and investments of the fund, payment of benefits, when a member wishes to exit, and when compulsory payment of benefits after death needs to occur. In particular, after a member’s death, disputes might occur between parties who want the member’s benefits to be paid to them.
Inability to act as trustee
Those who are SMSF trustees could face serious problems if they begin to suffer memory loss, dementia or if they lose their capacity to make decisions. There are options to address these problems if they occur but planning ahead and expert advice are necessary.
Also, if you are or become a disqualified person – such as an undischarged bankrupt or convicted of an offence involving dishonest conduct – you won’t be allowed to maintain an SMSF.
Statutory compensation and complaints
If you start an SMSF, the SMSF does not have access to the compensation framework available to investors in an APRA-regulated superannuation fund in the event of theft or fraud on the fund.
You should also be aware that certain dispute resolution mechanisms, such as the Australian Financial Complaints Authority (AFCA), may not available to SMSFs if the dispute is of a certain nature (eg, a complaint about a trustee of the SMSF cannot be handled by AFCA). Access to some different complaint mechanisms may be available, however.
What to do if you’re unsure
The ATO publishes a list of approved SMSF education courses and all of them are free, so you build your knowledge of SMSFs and become familiar with what’s required.
If you are unsure whether an SMSF is right for you, we recommend you obtain independent financial and professional advice. The government websites of the ATO and ASIC also contain helpful guidance on what it means to start and run an SMSF, including the risks.
If you’re ready, get started on your SMSF journey with Selfmade today.
Can my SMSF borrow to buy property using a bare trust?
Using an SMSF with Selfmade, you can borrow the money to buy a single piece of real estate. The borrowing has to be done through a structure called a ‘bare trust’. This is also known as a limited recourse borrowing arrangement.