Everyone should invest in superannuation.
The system of compulsory super in Australia stands as a source of admiration, forming the bedrock of our national strategy to financially support our ageing population in their post-retirement years.
However, many people find themselves dissatisfied with the performance of retail and industry super funds, leading them to seek alternatives. A popular choice is setting up a Self-Managed Super Fund (SMSF).
The desire for better control over investments and outcomes prompts individuals to explore this option as a more personalised approach to securing their retirement.
What Is An Self-Managed Super Fund (SMSF)?
An SMSF is often termed a do-it-yourself fund or DIY super fund.
It is a private superannuation fund that an individual can manage themselves or pay a professional to set up an SMSF. Tax, insurance and investing are some of the things you are responsible for when it comes to SMSF.
Although you get more freedom to manage your super, SMSF requires a lot of time and effort. It requires financial and legal skills.
How Does An SMSF Work?
SMSF or a self-managed super fund can have six members at most, and all members must be trustees of the fund or directors of the corporate trustee in case the funds are run under a corporate structure.
SMSF trustees or corporate trustees, like any other super funds, have to run their funds solely for the purpose of providing retirement benefits (Under Superannuation Industry Supervision ACT 1993).
Superannuation funds of the members are paid into their SMSF, and now, the responsibility of investing those appropriately falls on the shoulders of the members.
An essential requirement is the formulation of an investment strategy that considers the risk profiles of all members. This strategy should be tailored to the unique circumstances of the fund and its six members.
How To Set Up An SMSF
Let’s move on to how you can set up an SMSF.
First, you must decide on which structure you wish to use: an individual or a Corporate trustee.
After it has been determined, you will need to appoint trustees. You need to ensure that every SMSF trustee meets the eligibility requirements. The trustee declaration must be signed within 21 days of consenting to become a trustee.
A trust deed, which is one of the most important documents for an SMSF, also needs to be created. This deed sets out how the fund will be run and what it can do.
Your fund must hold assets in order to be an official superannuation fund. Such assets should be held separately from other entity’s assets. As a result, not only does the fund require its own bank account, but it also has to be registered with the ATO (Australian Taxation Office) within 60 days of establishment to obtain an ABN and TFN.
Along with this, an ESA (Electronic Servicing Address) registration is needed. It may be provided to you by your SMSF administrator if you use one.
As mentioned previously, an investment strategy is necessary, which outlines the objectives of the fund along with the types of investments it can make. While there is no specific form, the strategy must be documented and subject to regular review.
Rules for SMSF
There are some strict rules, regulations and requirements when it comes to SMSFs and SMSF trustees.
You have to appoint and pay for an auditor each year to audit your fund. Along with this, you must keep the records for at least five years and, in specific circumstances, for as long as ten years. Regular asset valuation and annual return completion are essential parts.
Regular trustee meetings must be held, and decisions, particularly those on investments, should be carefully documented in minutes. It is necessary to maintain a comprehensive investment strategy that undergoes regular reviews.
The complexities of rules and requirements intensify significantly when a member of an SMSF transitions into retirement.
Advantages Of SMSF
The biggest advantage of an SMSF is control. With SMSF, you know exactly where your superannuation funds are invested and often how well those investments are doing.
An SMSF may be right for you if you like investing and learning about superannuation. This is especially true if you find fulfilment in dedicating your spare time to staying informed about market trends, understanding SMSF requirements, and staying up-to-date with developments in superannuation legislation.
While there can be potential cost advantages associated with an SMSF, it’s important to note that having a super balance exceeding $200,000 makes managing your own fund potentially more economical than investing in an industry or retail fund.
So, if the prospect of active involvement in your financial strategy excites you and your superannuation balance meets the threshold, an SMSF might be the ideal fit.
Risks And Responsibilities Of SMSF
All the members of an SMSF bear the collective responsibility for the fund’s decisions and ensuring compliance with the law. However, with these responsibilities, there come risks as well. Some of the risks include the following:
- If money is lost through fraud or theft, you will not have access to any special compensation schemes or to the AFCA (Australian Financial Complaints Authority).
- Your investments may not bring the returns you were expecting.
- Regardless of professional advice (from a financial adviser, legal professional or an accountant) or decisions made by other members, individuals are personally liable for all the fund’s choices.
- A relationship breakdown may have a negative impact on your SMSF. The same goes for the circumstances where a member becomes ill or dies.
- Even if your circumstances change, you are responsible for managing the fund.
- You could also lose insurance if you are moving from an industry or retail super fund to an SMSF.
Ready To Supercharge Your SMSF?
Unlock the full potential of your self-managed super fund (SMSF) with the expert advisory services of Clear Tax Accountants.
At Clear Tax Accountants, we specialise in transforming SMSFs into powerful wealth-building tools. Our seasoned advisors are ready to tailor strategies to your unique financial goals, ensuring a secure and prosperous future.
So, if you wish to seek professional advice, contact us today.
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