7 Things You Need to Know About Self Managed Super Funds (SMSFs)

1. What is an SMSF ?

An SMSF is a superannuation fund with a maximum of four members who act as the fund’s trustees and direct its investment strategy, giving Australians a chance to take a more active role in planning their retirement. SMSF’s represent the fastest growing sector of the superannuation industry.

2. What are the Advantages of an SMSF ?

For most Australians, super is one of the most important assets only coming second to the family home. Super offers a lot of tax breaks and ensures you a saving for your retirement. Starting a SMSF is about control over your investment. You can create an investment strategy that is aligned with your risk appetite, ensuring that your money is doing precisely what you want it to do. Recently it has become possible to borrow money to purchase property. This means that when members reach pension age, they will be able to take control of this property, something that is not possible in other types of funds. SMSF members also have greater control over the tax liabilities of their superannuation, and there are many tax minimisation strategies available to SMSF’s. There are some advantages that are specific to business owners. Under some circumstances, your SMSF can purchase your business premises, and the business can, in turn, lease the property from the SMSF.

3. The responsibilities of being an SMSF Trustee.

As an SMSF Trustee, you will be liable for all of the activities of the SMSF. This may sound daunting to some, but with the support of professional advice the risk of breaching compliance is significantly reduced. The most important thing is ensuring that the activities of your SMSF meet the sole purpse test. This means that the only motive behind the fund’s investment strategy can be to provide for its members retirement. Every year you will need to lodge certain documents and you will need to appoint an independent auditor of the fund.

4. Investment Options

An SMSF can invest in almost anything, provided that it does not compromise the sole-purpose test and is aligned to the fund’s investment strategy. Australian shares, property, cash assets such as term deposits are the most popular. In some circumstances, it may even be possible to invest in less traditional assets, such as art, sports teams or racehorse syndicates (although such investments are subject to strict compliance requirements)

5. Determining your Investment Strategy.

The ability to set your own investment strategy is one of the biggest draws of starting an SMSF. The first decision is what level of risk you want to take on. Usually this will be influenced by how closely the members are to retirement age. You should also aim to have a degree of diversity across your asset portfolio. You also need to consider your liquidity: that is how fast the fund’s assets can be turned into cash.

6. How much do you need to start an SMSF ?

The amount of super that you need to start an SMSF is entirely dependent upon your specific circumstances, and the reasons you have for wanting to take a more active role in managing your retirement. As a rule, it is advisable to have enough super to make the annual administration costs of running an SMSF proportionately equivalent to what you would be paying in a retail or industry fund. Butlers Accountants SMSF specialist Hayley Piccolo can guide you here.

7. Choosing the other members of your SMSF.

It is possible for you to be the sole member of your SMSF. However, if you pursue this path then you will need to have another individual or legal entity sign on as a second Trustee. Four is the maximum number of members that an SMSF can have, however the majority of funds have two members. There are restrictions on people convicted of certain offences or are in particular financial circumstances (eg undischarged bankrupt).

If you would like to know more about setting up your own SMSF, contact our office on 07 5536 2288 or email SMSF Specialist Hayley Piccolo on hayleyp@butlersca.com.au.