Self Managed Superannuation Funds

Establishing a self managed (“do it yourself”) superannuation fund is becoming increasingly commonplace in Australia and is the alternative option to using an independently managed super fund (such as available through employer, retail or industry based superannuation providers).

 

Self managed super funds perform the same function as other super funds, namely to provide retirement and other ancillary benefits for their members. The key difference, however, is that members of self managed funds must also act as trustees and are therefore ultimately responsible for all investment decisions and the ongoing management of their fund.

Why establish a self managed super fund?

People may decide to establish a self managed super fund for reasons such as:

1) Control – trustees have complete control over the fund and its investments (within the legislative framework). This is attractive to those who wish to be more involved in the management of their monies.

 

2) Flexibility in investment decisions – trustees are able to invest in any approved assets, which may include investments such as shares, property (including direct residential or commercial) or managed funds. More advanced strategies such as investing in business real property, using gearing or borrowing (in certain circumstances) or active direct share investing, are possible, which can provide additional scope to maximize ones retirement assets. These avenues are generally unavailable through traditional superannuation channels.

 

3) Estate planning – Future generations may be more effectively cared for, through the greater flexibility provided via a SMSF. In addition, SMSF’s can be tailored to meet your specific estate planning needs, compared to other alternatives which have to meet the needs of many investors.

 

4) Cost Effectiveness – For larger amounts, SMSF’s may be particularly cost effective, as many costs are fixed and therefore fall as a percentage, as the amount of invested funds increases.

 

5) Tax Advantages – Whilst self managed super funds operate under same taxation rules as any other super fund, they may allow a more transparent and effective approach to minimizing tax payable. For example, funds may be managed to specifically provide tax advantages beyond those generally available to members. These may include investing to maximizing imputation credits via Australian equities or depreciation via direct property, which can reduce tax payable (including contributions tax).

 

6) Holistic Approach – SMSF’s have the ability to provide for one or more members (often family members) wealth accumulation and pension needs. This means they may be used in a holistic manner throughout a members lifetime.

Your obligations

As a SMSF trustee, you are ultimately responsible for running your SMSF. It is important you understand the duties, responsibilities and obligations of being a trustee. These responsibilities may include:

  • Managing the investments prudently
  • Ensuring that the fund complies with all the relevant laws at all times of the year
  • Keeping your super fund’s records (including bank accounts) separate to those for your other personal or business interests
  • Investing the fund assets in a way that meets your funds investment strategy, is prudent, and will provide for the members’ retirement or death
  • Maintaining appropriate records
  • Lodging an annual SMSF return with the ATO and appointing an approved auditor to audit your fund.

Some of the key restrictions under the SIS Act include:

  • meeting the sole purpose test (a fund must be for the purpose of providing retirement benefits to members).
  • to not accessing your money without meeting a specific condition of release
  • not providing loans or financial assistance to members or relatives
  • Not acquiring assets from a member or related party of the fund (except in limited circumstances)

Significant penalties may apply for trustees not meeting their obligations.

Who is a SMSF suitable for?

While SMSFs are great for some people, they don’t suit everyone. Managing your own super takes time, knowledge, skill and money, so before deciding to set up a SMSF, it’s important to consider these issues. Should you wish to take advantage of a SMSF to assist in your retirement planning, but don’t have the ability or willingness to perform the various administration or investment functions, utilising an advisory service can assist in this regard.

 

If you don’t already have your own DIY super fund but are interested in setting one up, an adviser at PGFS can assist in this process, its administration over time and the management of the funds assets. Alternatively, if you have a SMSF and wish to consider your options to improve its performance or management, please call us or e-mail info@pgfs.com.au.