Today most Australians are opting for ‘do it yourself’ option and setting up a self-managed super fund (SMSF). So, what are SMSFs and why are they so popular?
What actually is a SMSF?
A SMSF is actually a superannuation fund with 1-4 members. These members are all trustees, who look after the fund and decide upon the investment strategy. SMSFs are regulated by the Australian Tax Office and must meet the following criteria:
a) They must have fewer than five members
b) All members of the fund must be trustees
c) None of the member of the fund can be an employee of any other member, till the time they are related.
d) Trustees or members of the fund cannot receive/take any kind of salary or remuneration for their services as trustee.
e) A company can be trustee of the fund provided each director of the company is a member (and vice versa) and all other criteria’s mentioned above are met.
Advantages of SMSF
For the right person, self managed super fund can prove to be of great benefit as mentioned below:
a) Flexibility – You get the complete ownership to decide upon the investment strategy and choose your investments from a wider range of assets which include property, shares and managed funds. You can even transfer your business premises into the SMSF and pay rent.
b) Tax Savings – You can set an SMSF to lower your tax liability.
c) Total control of your retirement savings – You are in full control over it as you decide upon the investments.
d) Reduced Administration fees – People who plan to do larger investment in super, self managed super fund will usually cost less to administrator.
Disadvantages of SMSF
With added control everyone wants more however, following are the limitations:
a) Responsibility – All decisions and responsibilities associated with managing the fund rest with the trustees (members) of the fund.
b) Compliance and administration – Trustees need to make sure that ongoing administration and end of financial year regulatory reports are completed to ensure your fund complies and has concessional tax status.
Please Note: There are also substantial penalties if your self-managed super fund does not comply with regulations, which you should be aware of before you decide to take on an SMSF.
c) Running costs – Due to the administration and compliance responsibilities, you may need to pay professionals to complete part or all of these requirements. Therefore, SMSFs tend to be more worthwhile with reasonable super account balances. To apprise you, a balance of $200,000 or more is recommended.
How to setup a self-managed super fund
When setting up an SMSF it is important to seek professional advice and input. Professionals listed below play an important role in ensuring your fund complies and meets your investment objective
a) Solicitors (to prepare trust deeds)
b) Accountants and administrators (to complete the audit and tax returns)
c) Wealth adviser (to help you with investments)
So overall, a SMSF is not for everyone but for those that do choose to have one, ensure that a team of professionals are helping you out.