Many of us have a self-managed superannuation fund (SMSF). There are some 600,000 of them in Australia. But, many of us don’t have a SMSF. For those who don’t (or even those who do) have one, here’s a little cameo article of the basics of SMSFs.
A SMSF is way to save for your retirement. SMSFs differ from other super funds (such as public, industry or retail funds) because the trustees of the SMSF are, in most cases, also the members. This means that the members of the fund are able to operate the SMSF for their benefit. However, they are also required to comply with the complex laws that govern SMSFs.
SMSFs can provide the following benefits for members:
The trustee’s role includes being responsible for:
A SMSF can invest in a broad range of assets that are allowed under the SMSF’s investment strategy, and that are in accordance with the legislation governing SMSFs. For example, these assets might include shares, term deposits, managed funds and property. As well as this, SMSFs can also hold alternative assets, such as antiques and artwork.
There are restrictions on the way that SMSFs operate. There are some assets that they cannot invest in or which are limited as to how much of the fund is allowed to be invested in certain assets. For example, loans to members of the SMSF or their relatives are prohibited.
It is essential that a SMSF is operated for the sole purpose of providing retirement benefits to its members.
There can be very serious consequences where a SMSF fails to comply with its obligations under the legislation governing it. These include being taxed at 47 percent due to a loss of the concessional rate afforded to SMSFs, significant fines and, in extreme circumstances, prison for SMSF trustees who do the wrong thing.
Members of a SMSF can include family, including your spouse, children, even parents. The maximum number of members for a SMSF is four.
While there is the potential to save money by sharing a SMSF, there is also the potential for more problems the more people that are involved, so we recommend that you carefully consider who to bring in as members of a SMSF.
SMSFs generally have a variety of expenses and fees to pay, including the cost of investing such as broker fees, any trustee service fees and accounting costs, plus the costs associated with ongoing administration and annual auditing.
In general terms, it seems to be accepted that you need at least $200,000 to make the set up worthwhile.
As most lawyers would frustratingly say, “it depends”. Deciding on whether a SMSF is right for you is affected by a number of factors. Due to its complexity, we recommend seeking professional advice from legal and financial specialists able to guide you through the decision making process.
In the end, advice is cheap – only if you get it, it is right and it is right for you.
CRH Law’s SMSF specialist advisor Rebecca Edwards assisted in the preparation of this article.