Self Managed Super Fund FAQ’s - Your SMSF Questions Answered
It’s a great thing to plan ahead for the future. Making smart financial decisions is something we are absolutely here for. No one wants to get to retirement and find they aren’t able to enjoy the rewards of their years of hard work.
When it comes to superannuation there are plenty of ways to go about it. If you’ve heard that an SMSF is the best choice, and you’re thinking of starting a fund, it could be a great idea, but there is a lot to consider. Here’s some frequently asked questions to consider for yourself.
What IS a Self Managed Super Fund, Exactly?
A Self Managed Super Fund is a private fund that is run by the members of the fund. You make the investment decisions for the fund and you’re held responsible for complying with the super and tax laws. You are able to have up to 6 members of a fund and it must be run for the sole purpose of providing retirement benefits to the members.
Are There Different Types of SMSF’s?
There are two types of SMSF trustee structures - individual trustees, or corporate trustees (essentially a company acting as trustee for the fund). There are various requirements for each structure and these will depend on if it is a single member fund or a multiple member fund. E.g. each member of the fund must either be a trustee or director of the trustee company.
Some benefits of having a corporate trustee (although this option is more expensive to set up) include: perpetual succession; estate planning flexibility; clear separation of assets; and greater administrative efficiency.
What Are The Rules For A Self Managed Super Fund?
Becoming a trustee for an SMSF means that you become legally responsible for operating your superannuation fund and ensuring it is compliant with evolving tax law.
You are not able to use a self managed super fund in order to buy a holiday home or artwork for your home, for example. There are strict rules you must comply with, similar to an industry super fund and any breach of these are met with harsh penalties for the individual trustees, or the directors of the corporate trustee involved.
The individual trustees are held responsible for the actions taken by the SMSF, so when using a financial advisor to help you manage the fund, make sure you are clear on what they are talking about, and the actions they are taking. Using an accountant you can trust is critical (us, you can trust us).
The trust deed of a SMSF is a legal document that sets out the rules for establishing and operating your fund. It includes things such as the fund’s objectives, who can be a member and whether benefits can be paid as a lump sum or income stream. The trust deed and super laws together form the fund’s governing rules.
Can I Buy Property Through A SMSF?
You can take a loan through your self managed super fund to buy commercial property - we go into more detail on that HERE.
When Can I Draw From My Self Managed Super Fund?
In order to draw from your super you need to meet some conditions of release. To satisfy these conditions you’d need to satisfy one of the following:
You could be over 60 and retire from the workforce to access the money inside your super fund.
You could be over 65 and working full time - once you’ve reached 65 you’re allowed to draw from your superannuation as you see fit (either in a lump sum or as a pension, in an ongoing fashion - a pension does involve more tax savings).
If you become incapacitated, in some circumstances you can access it then as well, if needed (this is carefully monitored, and there are strict requirements).
Accessing your super without satisfying the above conditions is illegal, as are any schemes to try to gain earlier access. The Australian Taxation Office has severe penalties for any misuse.
Does an SMSF Suit Everyone?
The short answer here is no.
Whilst there is no minimum balance requirement, for a SMSF to be most cost effective we recommend having a minimum balance of approx. $250k.
There are certain people who are disqualified from having an SMSF, for example if you’ve ever been convicted of an offence involving dishonesty, or if you’re simply underage. However if you’re under 18 a parent or guardian can be the trustee of an SMSF on behalf of the minor.
You may opt to have a self managed super fund if you want to purchase a commercial property for your business to operate out of, or for any number of other valid reasons. However, without a commercially viable reason it may not be the best choice as it can be costly to set up and maintain.
For more details on why you would (or would not) have an SMSF, you can read more HERE.
What Type of Investments Can I Make Through an SMSF?
All Self Managed Super Fund’s will need an investment strategy. This strategy is required to document the investment objectives and retirement goals, and needs to consider the risks and liquidity of the assets.
Some examples of assets SMSF can invest in are:
Shares (Australian and international);
Property (Residential and Commercial);
Managed Funds;
Term Deposits; and Bonds.
The assets of the SMSF must be separate from the personal assets of its members and you can’t buy assets from, or lend money to members or other related parties. It’s also important to note that your SMSF can generally not borrow money unless you are investing in property through a Limited Recourse Borrowing Arrangement (LRBA - an LRBA involves an SMSF trustee taking out a loan from a third-party lender).
What are the Costs Involved in a Self Managed Super Fund?
The costs of having a SMSF vary depending on the structure and the complexity. Costs can include:
Initial set up costs (including trust deed, setting up a trustee company)
Accounting & tax fees
Audit fees
Financial advisor fees
Annual SMSF supervisory levy
An SMSF that is investing in property through a Limited Resource Borrowing Arrangement, or LRBA (an LRBA involves an SMSF trustee taking out a loan from a third-party lender), will also have additional set up costs.
We Are Self Managed Superannuation Specialists.
Make sure you have the right people giving you the right advice when you need it. That means us along with a qualified financial adviser to make sure you’re on the right track.
If you don’t yet have a SMSF - here’s a blog outlining some pro’s and con’s for you to investigate further.
We love partnering with driven and ambitious business owners, to package up their business needs along with their SMSF.
