SMSF Set Up

A Self-Managed Superannuation Fund (SMSF) is a superannuation fund with less than five members. Generally all members of the fund must be Trustees of the Fund, and all Trustees must be members of the Fund.

The basic requirements for a Self-Managed Superannuation Fund include:

• a trust deed;
• an investment strategy;
• an election to be regulated under applicable Australian law (to gain tax concessions):
• annual financial accounts and lodgement of regulatory returns;
• ongoing compliance.

The Trustee of an SMSF can be either a group of individuals consisting of the members of the fund, or a corporation where the members of the Fund are directors of the company. The Trustee of the Fund retains full responsibility for the operation of the Fund, including the Fund’s investment decisions, compliance and reporting obligations. The Trustee of the Fund must keep all assets of the Fund separate from their own assets.

Each fund must have its own investment strategy which takes into account the circumstances of the fund and its members. The Trustee has discretion to make investment decisions on behalf of the Fund in accordance with the Fund’s investment strategy and Government regulations such as ensuring that all investments of the Fund are made to provide retirement benefits for members.

SMSFs are regulated by the Australian Taxation Office (ATO). The ATO has the power to impose significant penalties if funds fail to meet their obligations or breach the requirements of the law.

Superannuation funds are given substantial tax concessions from the Government. Self-Managed Superannuation Funds are able to accept superannuation contributions in respect of its members with the aim of increasing their account balance for retirement.

While superannuation funds are in the ‘accumulation phase’ investment earnings are taxed at 15% and capital gains are taxed at 10%. The effective tax rate for superannuation funds can be reduced further by the use of imputation credits and allowable tax deductions of the fund.

Upon retirement, a member of an SMSF may elect to take their benefit as a lump-sum, a pension or a combination of both.

In the ‘pension phase’ the investment earnings and capital gains of superannuation funds are exempt from tax. Once a member reaches 60 years of age, any benefits they receive, including lump sums and pension payments are exempt from tax.

There are numerous advantages to running your own Self-Managed Superannuation Fund
including:

• Cost – for investors with larger superannuation account balances an SMSF can be a cheaper option than other superannuation alternatives. Generally this is attributable to the fact that the majority of expenses for an SMSF are fixed in nature, while retail superannuation funds often charge fees as a percentage of assets under management.
  My Own Super Fund charges fees at a flat rate, not based on the size of the superannuation fund;
• Control – Trustees of SMSFs make the investment decisions on behalf of the Fund. This means that the Trustees/Members of the Fund have absolute control as to how their superannuation assets are invested;
• Flexibility – Trustees of SMSFs are able to invest directly in a wider range of assets than are normally available within a retail superannuation fund. Investment decisions and changes to the structure of the Fund can also be quickly implemented.

There are onerous compliance and reporting requirements associated with self-managed superannuation. While the onerous nature of these requirements can be reduced to some extent by the appointment of a professional administration company, using an external service provider does not absolve the Trustees of their legal responsibilities.Trustees of a Self-Managed Superannuation Fund must take a keen interest and be actively involved in the running of their SMSF, including making investment decisions, passing resolutions and approving reports and documentation.Given the nature of the costs involved, it is generally accepted that SMSF suit individuals with larger superannuation account balances.