A Self-Managed Super fund is simply a super fund that is designed to be managed and operated by its members. Most Australians who choose to start up their own self-managed super fund do so to have more control over the investments in which they invest.
What is a SMSF? Control
- A Self-managed super fund provides maximum control over your super assets and allows you the flexibility to decide how your funds are invested.
- Self-managed super funds offer many advantages to small business owners with many choosing to purchase their commercial building that they work out of through their self-managed super fund.
What is a SMSF? Highly regulated
The Self-managed super fund must be run to comply with the Super Industry (Supervision) ACT 1993 (SIS Act) as well as general trust and tax laws.
- The self-managed super fund must be maintained for the sole purpose of providing benefits to members in their retirement.
- It can also be used for Ancillary purposes such as providing disability benefits through insurance.
- A Self-managed super fund is a separate legal entity so any money and assets must be kept separate from personal or business assets.
- Money belonging to the self-managed super fund must NOT be used for personal or business use for any reason.
- Member benefits can only be paid once a member has met a condition of release.
The SIS act contains 557 pages of regulations and it is updated on a regular basis. Not only do you need to understand and comply with it but you must also keep up to date with any changes.
What is a SMSF? Responsibility
Each member of a Self-managed super fund must also be a trustee of the fund. Being a trustee comes with it significant responsibility.
As a trustee you have responsibility to:
- Act honestly in all matters concerning the fund.
- Act in the best interest of all fund members
- Exercise the same degree of care, skill and diligence as a prudent person would in dealing with the assets of another person.
- Develop and implement an investment strategy
- Comply with investment restrictions
- Meet the requirements of SIS
- Maintain records and discharge ATO requirements
The above are just some of the requirements of managing a self-managed super fund.
What is a SMSF? Flexibility
Many people are surprised to find out their Will has no impact on their super assets. Some super funds only provide very limited ability to choose who and how your super asssets will be paid. Some only provide discretionary nomination of your super assets where it is at the trustees discretion (within law) as to who your assets will be distributed too. Self-managed super funds provide the ultimate flexibility by allowing you to have binding nomination or to create your own self-managed super fund will.
Who is a SMSF suited to?
Self-managed super funds are best suited to those people looking for maximum control over their super assets, but are also willing to accept certain regulatory responsibilities placed on trustees of SMSFs and to work at managing their investments.
Before deciding whether to manage your own self-managed super fund, think about the following.
Do you need a self-managed super fund?
What type of investments do you wish to invest in? If you are only wishing to choose your own managed investments or shares you may find a retail platform a more suitable choice, providing you with consolidated reporting and access to wholesale fund managers. This in turn could mean fewer fees than the cost of accessing retail managers and maintaining a self-managed super fund such as accounting and audit fees.
Do you have sufficient assets to warrant the cost?
- Self-managed super funds are usually most cost effective when assets exceed $300,000. If deciding to set up an self-managed super fund with less than $300,000, you need to consider the ongoing administration costs.
- Many retail platforms offering significant investment menus charge less than 1% of assets under management. Accounting, audit and other professional fees can quickly add up destroying any cost savings you thought possible.
Do you have the appropriate skill?
If you’re not confident you can get a better result from a self-managed super fund, you may be better off with a different type of fund. Also consider the cost to hire the people with the right skills as these may outweigh any benefits you thought possible from setting up a self-managed super fund.
Make sure you have enough time
Running your own self-managed super fund can take considerable time. First you need to develop your investment strategy, research and implement your investments decisions, (implementing your investments can take considerable time filling in paper applications) and keeping track of all the paperwork as well as keeping up to date with all the regulatory changes.
Understanding the penalties if not compliant
If you fail to operate your self-managed super fund within the law your fund may be made non-compliant. This means that your fund could be taxed at the highest marginal tax rate and not 15% that makes super such a great investment vehicle.
Self-managed super funds aren’t for everyone
You should think carefully before deciding to set up a self-managed super fund. It’s a major financial decision and you need to have the time and skills to do it. There may be other, better options for your super savings. Either way you should certainly get professional advice.
Why get SMSF advice from True Financial?
As we do not benefit from either establishment fees or the ongoing maintenance of your self-managed super fund we can provide advice that is in your best interest. We can go through your investment goals and help you to acertain the true cost of implementing your investment strategy. We can also let you know if there is another product more suitable to your needs that you can implement your investment strategy with at less cost. We can also help you, or design a strategy for you, to meet your investment goals. At True Financial we work for you and we only receive payment from you. As we do not receive fees for the establishment or ongoing maintenance of your self-managed super fund you will find we are in the best position to provide you with advice on your best options.
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