What is a SMSF?
A Self Managed Super Fund (SMSF), also known as DIY super, is a small superannuation fund established under Super law to give you more control of how your superannuation assets are invested. The primary purpose of a self managed super fund, like any other super fund, is to provide benefits to members upon retirement.
A SMSF is one where:
- There are fewer than 5 members
- Each member of the fund is a trustee
- No member of the fund is an employee of another member of the fund, unless they are related, and
- No trustee or director of the corporate trustee can be paid for being a trustee
How it Works
Members of a Self Managed Super Fund also act as trustees and therefore will be involved in the operation of the fund including making investment decisions.
A Self Managed Super Fund must have its own bank account which you as trustee/member operate. Rollovers from other super funds, and all contributions - personal, employer, spouse, and government are deposited into the Self Managed Super Fund's bank account for you to invest. Super law allows you to formulate and implement an investment strategy for your Self Managed Super Fund and invest the money accordingly. Income derived from investments can be used to make further investments.
The money in the bank account may be used for payment of fund expenses (such as taxes and accounting fees) and of course payment of pension and lump sum benefits to members upon retirement.
Advantages of a SMSF
The main advantages of a Self Managed Super Fund include:
Control - Members of a Self Managed Super fund also act as trustees and therefore have complete security, flexibility and control over the fund and its investments.
Investment Choice – With a Self Managed Super Fund you are able to (subject to certain restrictions) invest directly in a wide range of assets including cash, securities, real property, managed funds, equity warrants, unit trusts and derivatives.
Tax Concessions – Self Managed Super Fund (like other superannuation funds) offer significant tax benefits. For instance:
- You can contribute before tax dollars through salary sacrificing or claim a tax deduction in some circumstances for your personal contributions,
- While your money is invested, you benefit because complying superannuation funds are subject to the lowest rate of tax of any entity structure in Australia on income and capital gains, and
- When you receive the benefits either as a pension or lump sum, you generally won’t pay any tax on them if you are aged over 60.
Income in Retirement – A Self Managed Super Fund offers the most flexible option for taking benefits in retirement, whether the benefits are taken as a pension or lump sum or both.
Insurance – Members of a Self Managed Super Fund are able to obtain total & permanent disability insurance and life insurance through their SMSF. The premium is paid by the super fund and is a tax deductible expense to the super fund.
Cost Effective - A Self Managed Super Fund can be a cheaper option than other superannuation alternatives. This is attributable to two factors: 1) The majority of expenses for a Self Managed Super Fund are fixed in nature, while retail and industry funds charge fees as a percentage of assets under management. 2) With a Self Managed Super Fund you can consolidate up to 4 of your family’s super within a single fund. By doing so only one collective fee is paid, instead of each member paying separate fees.
Members & Trustees
The trustees hold the assets of the superfund for the benefit of the members. In a Self Managed Super Fund the members must also act as trustees and therefore they have complete security, control and flexibility over their superannuation. A Self Managed Super Fund may have 1 to 4 members and will have either individuals acting as trustees or a company acting as trustee.
Appointing individual trustees is the easiest and most cost effective way to establish a Self Managed Super Fund. There is no additional establishment cost. It is a legal requirement to have a minimum of 2 individual trustees. However, it is possible to have only 1 member, as the subsequent trustee does not have to be a member of the Fund. You may appoint an adult relative or friend as an individual trustee.
If you want to establish a fund for yourself only with no other individual trustees the only option is to establish a company to act as trustee.
You may decide to establish a Company to act as Trustee for your Self Managed Super Fund, of which you are the sole Director & Shareholder and therefore have full control of your Fund. This option is more expensive as ASIC charge a company set-up fee of $479 and an annual fee of $254 (this fee is reduced to $48 if the company is used for the sole purpose of acting as trustee for your Self Managed Super Fund). If you would like assistance in setting up a company please contact us.
The following table outlines the tax treatment applicable for your Self Managed Super Fund.
|Accumulation Mode||Pension Commenced|
|Investment Earnings in the Fund||15%||0%|
|Capital Gains - Asset Owned Under 12 Months||15%||0%|
|Capital Gains - Asset Owned Over 12 Months||10%||0%|