What is a Self-Managed Superannuation Fund (SMSF)?

Should I Have One?

What is a Self-Managed Superannuation Fund (SMSF)? 

Self-managed superannuation funds, like all superannuation funds, are a special type of trust established for providing benefits for members in their retirement. A SMSF is distinguished from other superannuation funds by the following criteria: 

• It has four or fewer members.
• Each member of the fund is a trustee, or a director of a corporate trustee.
• No member of the fund is an employee of another member of the fund, unless they are related.
• No trustee of the fund receives any remuneration for their services as a trustee.

As each member is also a trustee, they are controlling the investment of their contributions and the payment of their benefits.  In order to prevent this control from being abused and members spending their super savings before retirement, there are rules governing the operation of self managed superannuation funds. The general rule for all SMSF transactions is the sole purpose test.  The sole purpose test is based on the premise that any investment decision must be clearly made for future rather than present benefit of the members, in accordance with an investment strategy. For more detailed information on self managed superannuation fund regulations, please contact our office or visit the Australian Taxation Office website. 

Some Advantages of SMSF 

• Increased control over investments and the flexibility to invest in a range of assets.
• Ability to transfer assets to members upon retirement.
• Choice of retirement products: lump sum payments or pensions
• Estate planning – can direct tax effective payments directly to nominated beneficiaries
• Protection of assets from bankruptcy
• Significant tax benefits and concessions
• Portability – SMSF’s can be moved from job to job
• Receive employer and member contributions (limits apply)
• Receive rollover benefits from other superannuation funds (including non-SMSF)
• Members may sell or contribute Business Real Property or Listed Public Shares, which they personally own, into their own SMSF (limits apply)
  

Disadvantages of SMSF 

Not everyone can or should set up a SMSF.  Their establishment and ongoing costs can be prohibitive where there are only minimal contributions and small investments. Not everyone can contribute into a SMSF – there are age and/or work test requirements.   

Should you have a self managed superannuation fund? 

If you answer yes to one or more of the following questions, then you certainly should consider it. 

Do you want to pay less tax?

• Great estate planning tool; enabling beneficiaries to receive tax-effective payments upon the death of a member.
• Tax savings on contributions or investment income with a rate of 15% compared to a maximum personal tax rate of 46.5% (including the Medicare Levy).
• No income tax payable by the fund on investment income, if all members’ benefits are being paid as a pension
• No income tax payable by members aged 60 and over, from any benefits received from a SMSF
• Capital gains tax concessions.
  
  

Do you want control and choice over your investments?

• Increased control over investments and the flexibility to invest in a very wide range of assets, including many investments not available through commercial superannuation funds.

Do you want control over your retirement payments / savings?

• Choice of amount and frequency of the payment of your benefits (rules apply)
• Choice of retirement products including lump sum payments and pension
• Ability to transfer assets to members upon retirement, in lieu of cash
• Early access to benefits, prior to retirement, through special Transition to Retirement Pension 

Do you want to use your super savings for property/building ownership?

• Maximising retirement benefits through receiving rental payments and capital growth
• Enabling participation in a high growth market where personal finances are restricted  

Do you want to transfer ownership of Business Real Property or Listed Public Shares (rules apply)?

• Asset protection
• Personal cash flow considerations – if your SMSF has sufficient cash!
• Estate planning or tax planning considerations

  
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