What are the key features of a Self Managed Super Fund?
A SMSF, is a type of DIY retirement savings unique to Australia that is gaining popularity with over 630,000 SMSFs in existence. With this increasing prevalence within the market, it is important for prospective trustees to understand the key features of a Self Managed Super Fund before trying to decide if an SMSF Setup will work for their investment plans.
What are the key features of a Self Managed Super Fund?
- a SMSF is a unique type of trust which is managed by a trustee which can sometimes be individuals or, generally, a company
- the fund must be established with the sole purpose of providing retirement benefits to its members or beneficiaries if the member dies beforehand
- it is regulated by the Australian Taxation Office (ATO)
- it has a maximum of six members
- generally, each member must be a trustee or a director of a corporate trustee
- a single member fund cannot have a single individual trustee but can establish a single director corporate trustee or appoint a second individual trustee or a second director who is not a member
- a member cannot be an employee of another member unless they are related
- in a single member fund, the member cannot be employed by the second individual trustee or director unless they are relatives
- the extended definition of employee allows business partners to be in the same fund
Hint – NSW, QLD, VIC, WA and ACT Trustee Acts only allow four individual trustees and thus larger SMSFs are required to have a corporate trustee
Considerations when setting up a SMSF
- What trustee structure is best suited to your needs?
Individual trustee’s vs a corporate trustee. We recommend a corporate trustee, especially if you have more than four members or you have ageing members. Refer to our resource page in relation to SMSF trustees.
- What are the costs of establishing and running an SMSF?
The cost of a SMSF set up is $2,000 + GST and ongoing costs can vary depending on the complexity of your SMSF.
What sort of investments can I make in my SMSF?
An SMSF can invest into most assets. However, there are limitations on investments involving related parties. A fund can acquire business real property from related parties but generally not residential property. Business real property can be leased to a related party provided it has a formal lease with commercial terms and conditions supported by independent evidence. Borrowing is allowed under a limited recourse borrowing arrangement (LRBA) to purchase business real property or listed shares and equities. An SMSF must not lend or provide financial assistance to a member or a relative. An In-house asset such as a related unit trust cannot be acquired unless it is under the 5% asset threshold or is an ungeared unit trust.
Investment in cryptocurrencies is allowable through a SMSF but practically it may be difficult with some banks making it hard to move funds to and from exchanges so make sure you check with the bank prior to setting up the account to see if they are crypto friendly.
Ultimately, the investment must be made with the sole purpose of providing for the members retirement and be allowed under the fund’s trust deed. It is crucial that all transactions with related parties are made at arm’s length and can be supported with independent evidence such as a qualified valuer’s report in relation to a commercial property acquisition from a related party.
Financial Planning Support
If you are not sure if DIY Super is right for you then you should consult a licensed financial planner before proceeding to ensure it will fit with your plans and is right for your circumstances. This is not a service we offer in house as we would naturally be conflicted as we live and breathe nothing but Self Managed Super Funds!
Learn all you Can!
An important aspect of establishing a SMSF is ensuring the trustees are educated on the basics of superannuation laws and regulations (SISA) as well as the tax laws affecting superannuation. SMSF professionals can be engaged to assist with these obligations, but ultimately, the responsibility lies with the SMSF trustees. We have developed loads of information in our Resources pages to help trustees understand as much as possible about the process and ongoing requirements: