Financial planning

Everything you need to know about SMSFs in less than 5 minutes

Jun 28, 2019

The decision on whether to go with an SMSF rather than a super fund shouldn't be made lightly. Source: Getty.

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.

What is a SMSF?

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.

What’s the point of using a SMSF?

SMSFs can provide the following benefits for members:

More control for members over their superannuation
Tax savings
Administration fee savings and
Asset protection.

What does the trustee of a SMSF do?

The trustee’s role includes being responsible for:

holding assets for the sole purpose of providing benefits for your members (or their beneficiaries) upon their retirement
developing, putting in place and reviewing the SMSFs investment strategy
keeping SMSF assets separate from your personal or business assets
preparing and keeping proper records, including financial statements, tax returns and audits among other things
not lending money from the SMSF to its members
not borrowing money except in limited circumstances in accordance with the legislation
ensuring assets known as in-house assets do not exceed 5 percent of the total SMSF assets and
only releasing money when the proper conditions of release are met.

Which assets can a SMSF invest in?

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.

What can’t a SMSF do?

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.

Can anyone be in your SMSF?

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.

What are the costs of running 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.

Is a SMSF right for you?

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.