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Getting started with SMSF?

Establishing and running an SMSF is a major financial decision. As trustee(s), you are solely responsible for operating the fund and complying with the relevant laws and legislation. Here are a few important things to understand about SMSF.

What is an SMSF?

Self-managed super funds (SMSFs) are a way of saving for your retirement. The difference between an SMSF and other types of funds is that the members of an SMSF are usually also the trustees.

Make sure SMSF is right for you

What should you consider before setting up your own self managed super fund?

Understanding SMSF

SuperConcepts has a wealth of information you can draw on to build your knowledge of self-managed super funds.

How we can help you?

SuperConcepts can provide you with the tools to make management of your SMSF easy.

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Answered by Australia’s top experts

For over 30 years and with a team of leading experts, SuperConcepts has helped to support thousands of SMSFs. Here, we answer some of most common SMSF questions.

A self-managed superannuation fund (SMSF) is a super fund where you’re in control. You’re not only a member, but also a trustee. You choose the investment strategy and manage the investments.

An SMSF is flexible enough to allow you to invest in different assets like property, private companies and international assets.

An SMSF can have up to four members. Pooling your funds to build up the balance can give your SMSF more investment options.

The measure to increase the number of members allowed in an SMSF from four to six was introduced into Parliament 2 September 2020 and remains before the senate.

Generally, an SMSF will provide more flexibility and control than an industry or retail super fund. With an SMSF you choose the investments whereas a traditional super fund tends to invest in default investments which may not suit your personal investment goals.

An SMSF can add family, friends and partners as members (up to four members are allowed). A bigger balance could give your SMSF more investment options and might be more cost-effective. Traditional super funds only allow individual accounts.

The measure to increase the number of members allowed in an SMSF from four to six was introduced into Parliament 2 September 2020 and remains before the senate.

The costs will depend on the investments and are based on what you choose to do. Your SMSF only pays for what it uses. This means you could reduce your super costs, but that’s up to you. You’re the one in control.

While a traditional super fund aims to act tax effectively for all their members, your SMSF portfolio could offer more options for reducing tax.

An SMSF also provides more certainty about who will receive your benefit should you pass away. There is the flexibility to direct how benefits are distributed to take into account the situation of the beneficiaries.

You generally need a reasonable amount of super to justify the costs of an SMSF however there is no minimum balance required by law. The main considerations are comparing the costs incurred with those for industry or retail super funds, and ensuring that the balance, and any investment returns, are not absorbed by costs and fees.

The fixed costs, (such as the administration fee and audit fee) when measured as a percentage of the balance, will reduce as the balance increases. An SMSF can pool the superannuation accounts of up to four members to increase the total SMSF balance.

The measure to increase the number of members allowed in an SMSF from four to six was introduced into Parliament 2 September 2020 and remains before the senate.

SMSF balance 

Cost comparison with industry and retail funds

LESS THAN $100,000Not cost-effective in comparison to a large superfund, unless the SMSF could grow within a reasonable time.
$100,000 to $200,000Are competitive with APRA regulated funds provided the Trustees use one of the cheaper service providers or undertake some of the administration themselves.
> $200,000 Competitive with both Industry and Retail funds even for full administration.
> $250,000SMSFs become the cheapest alternative provided the Trustees undertake some of the administration, or, if seeking full administration, choose one of the cheaper services.
MORE THAN $500,000SMSFs are generally the cheapest alternative.

*The information provided on this table has been taken from the Rice Warner research report ‘Costs of Operating SMSFs 2020’. It does not take into account the personal objectives, financial situation, or particular needs of any individual and should not, therefore, be relied upon to make financial decisions. The cost of managing an SMSF is only one of the factors that needs to be considered when deciding whether an SMSF is right for you.

 

An SMSF may provide you with more investment options for your super. For example an SMSF can invest in direct property and collectables. You’ll be responsible for conducting investment research, keeping track of the investments and making the right decisions for your SMSF. Monitoring and controlling your SMSF’s transactions is directly done by you, which provides greater visibility of your SMSF’s investments and their performance at any time.

It will depend on what type of investor you are and how active you are when managing your investment portfolio.

As an SMSF trustee you'll need to:

  • monitor your investment strategy
  • research investment options
  • keep abreast of how your investments are performing and adapt your strategy
  • organise annual valuations (if required)
  • stay on top of your reporting obligations and make sure you meet important deadlines
  • keep up-to-date with changes to superannuation laws affecting your trustee responsibilities

While it might sound like a lot of effort, you can outsource many of these tasks to a professional provider and focus on the investing. It is important to understand that as the trustee of your SMSF you are responsible, and will be held accountable, for the compliance of your SMSF with the rules and regulations. You may delegate the duties, but not the responsibilities.

The costs will depend on how you choose to manage your SMSF and the investment strategy. The more complex you make it, the more it’s likely to cost. You control the costs. Your SMSF only pays for what it uses.

Administration costs are largely fixed whereas investments costs vary with the type of investments and the frequency of transactions. Also consider the net returns you’re expecting your SMSF to make (total return less costs to run).

In addition to administration costs and transaction costs, there is a set-up fee and some ongoing regulatory charges.

You can set-up and run an SMSF by yourself, but most trustees engage an accountant or a professional SMSF manager (like us) to manage the bulk of the administration work.

We can also help you understand what an SMSF can and can't invest in – but we won't be able to recommend any investment strategies or financial products. If you need help with that please contact a financial adviser.

It is important to understand that as the trustee of your SMSF you are responsible, and will be held accountable, for the compliance of your SMSF with the rules and regulations. You may delegate the duties, but not the responsibilities.

Anyone 18 years or over can be a trustee of an SMSF as long as they are not:

  • classified as an undischarged bankrupt;
  • mentally incapacitated;
  • charged with certain criminal convictions.
  • disqualified by a court or regulator (e.g. by ATO).

An individual under the age of 18 can be a member of an SMSF, but not a trustee.

SMSF residency rules can be complex. Generally:

  • the SMSF must have been established in Australia
  • the central management and control must ordinarily be carried out by trustees residing in Australia
  • for the purposes of determining whether contributions can be made by non-Australian resident members, at least 50% of the value of the SMSF’s assets must be attributable to active members who are Australian residents, for the contribution to be able to be made.

If you are planning to leave Australia for more than two years you should seek professional advice.

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