A self managed superannuation fund (SMSF) can be established with individual or corporate trustees. Flexible payout options incorporating lump sum and pension payments can be provided. All superannuation funds come with a suggested investment strategy and a product disclosure statement.
Q. What is a self managed superannuation fund?
Per section 17A of the Superannuation Industry (Supervision) Act 1993, the definition of self managed superannuation fund is:
(1) A superannuation fund, other than a fund with only one member, is a self managed superannuation fund if and only if it satisfies the following conditions:
(a) it has fewer than 5 members;
(b) if the trustees of the fund are individuals—each individual trustee of the fund is a member of the fund;
(c) if the trustee of the fund is a body corporate—each director of the body corporate is a member of the fund;
(d) each member of the fund:
(i) is a trustee of the fund; or
(ii) if the trustee of the fund is a body corporate—is a director of the body corporate;
(e) no member of the fund is an employee of another member of the fund, unless the members concerned are relatives;
(f) no trustee of the fund receives any remuneration from the fund or from any person for any duties or services performed by the trustee in relation to the fund;
(g) if the trustee of the fund is a body corporate—no director of the body corporate receives any remuneration from the fund or from any person (including the body corporate) for any duties or services performed by the director in relation to the fund.
Q. Can I have a self managed superannuation fund?
Anybody is eligible to run their own fund, but you can’t be:
• Currently insolvent
• Convicted of a dishonest act
• Disqualified by the regulator
• Can not have more than 5 members
Q. When is it cost-effective for me to have a self managed fund?
As a rule of thumb, if you and your partner have combined assets of around $200,000 in the superannuation environment, or can make substantial contributions to superannuation, you should be seriously considering a self managed fund as your most cost-effective option.
It’s at this point that you are on your way to making significant savings on management charges and fees.
The management fees will be significantly reduced when you combine more members into one self managed superannuation fund, provided it is fewer than five members.
Q. What are the advantages of managing my own super fund?
The major advantage of a self managed fund is control. That is, you choose how your assets are invested, you monitor how those investments perform and you make investment decisions based on that knowledge.
As you have total control of your fund, you’ll be able to consider a range of investments that suit you (subject to SIS legislation). You’ll be able to switch or modify those investments as you see fit, and you’ll be able to make “corrections” to your investment planning quickly.
– Tax Savings
Self Managed Superannuation Funds can use credits from franked dividends to reduce the 15% tax rate. In a self managed fund you are in a better position to plan your investments to reduce this tax rate. In fact, you can sometimes reduce this down to an effective tax rate of 0%.
– Cost Savings
To quantify the cost savings from a self managed fund you can compare it with a managed fund.
Managed funds often charge entry fees on contributions plus annual management fees which can vary, being on average 1.5%.
Q. What do I need to establish and maintain my fund?
To establish a standard self managed superannuation fund you will need a trust deed and other related documentation.
To maintain your self managed superannuation fund the trustee will need to perform the following:
• Annual financial report complying with the Government
• Audit requirements
• Tax Return
• Pay the ATO (Australian Tax Office) superannuation supervisory levy.
Q. How much time will I need to spend managing my fund?
Naturally, the answer to that question will vary from person to person depending on the investment activity you undertake.
If you enjoy studying the investment markets and you will quite voluntarily spend more and more time in active control of your fund. You’ll want to think about the monetary value and lifestyle you put on your own time. You may well find, however, that the time you spend is more than a worthwhile investment both in purely financial terms and the feeling of being in control that you gain.
If you don’t want to spend too much time, you might find a financial planner of your choice to make and maintain your investment strategies on your behalf.