Disclaimer: this is only general advice and not taking into consideration your personal needs and circumstances, and this strategy may be not suitable for you.

A self managed super fund (SMSF) is a superannuation trust structure that provides financial assistance to its members in retirement. The main difference between SMSFs and other super funds is that SMSF members are also the trustees of the fund. SMSFs can have between one and four members, and one of the main advantages is the level of control that trustees have when it comes to tailoring the fund to meet their individual needs. This differs from retail and industry super funds, which are designed to benefit a large group of members, meaning decisions are based on collective interests rather than what is best suited to individuals.

How does an SMSF work?

SMSFs are established for the sole purpose of providing financial benefits to members in retirement and their beneficiaries. They have their own Tax File Number (TFN), Australian Business Number (ABN) and transactional bank account, which allows them to receive contributions and rollovers, make investments and pay out pensions. All SMSF investments are made in the name of the fund and are controlled by the trustees. As a trust, an SMSF requires a trustee. There are two trustee structure options:

Corporate trustee – a company acts as the trustee and each member is a director. This structure allows simpler recording and registering of assets, providing administration efficiencies and flexibility in membership. Company establishment and ongoing fees are applicable with this structure.

Individual trustee – each member is appointed as a trustee, with a minimum of two trustees required.

What are the responsibilities of an SMSF trustee?

SMSF trustees are responsible for making investment decisions and ensuring implementation of an investment strategy for their fund. SMSFs also have strict administrative obligations that require trustees to maintain records, provide financial statements, complete a tax return and organise an independent audit. For this reason, many trustees engage SMSF specialists to help them manage their accounting, auditing and tax reporting, as well as provide financial and investment advice; however, they always remain completely responsible for the decisions and administration of their fund.

How we can help support SMSF trustees

SMSF trustees are responsible for making investment decisions and ensuring implementation of an investment strategy for their fund. SMSFs also have strict administrative obligations that require trustees to maintain records, provide financial statements, complete a tax return and organise an independent audit. For this reason, many trustees engage SMSF specialists to help them manage their accounting, auditing and tax reporting, as well as provide financial and investment advice; however, they always remain completely responsible for the decisions and administration of their fund.

SMSFs are not for everyone

With most things in life there are always risks and disadvantages and if we didn’t make our clients aware of the risks associated with having an SMSF we just wouldn’t be doing our job.

The specific risk associated with having a SMSF is if a SMSF does not meet the Superannuation Industry (Supervision) Act (SISA) requirements, the trustees may be exposed to a range of penalties, disqualification as a trustee of any fund or the fund may be taxed as a non-complying superannuation fund. The tax rate for a non-complying superannuation fund is 45% on the income and certain assets of the fund in the financial year in which the fund is made non-complying. In subsequent years in which the fund remains non-complying, the income and capital gains are taxed at 45%.

The risk of this strategy is that as directors of the corporate trustee, you are ultimately responsible in making sure the SMSF remains complying. Although this all sounds very daunting (and it can be) this is the very reason you engage professionals to ensure your fund remains compliant at all times.

There is no guarantee that the investments held within your SMSF will perform better than your existing superannuation fund.

Disadvantages

The main disadvantages of having a SMSF include:

1. Your obligations and responsibilities as directors of the company acting as a corporate trustee. Superannuation legislation imposes significant administrative and compliance tasks on the trustees of SMSF’s, and non-compliance carries severe penalties.

2. You may incur extra costs depending on the asset level of the SMSF and the investments chosen. If the SMSF’s assets are invested in managed funds, there can be an increase in costs, because in addition to accountant and financial planner fees for the administration of the SMSF, fund managers charge ongoing fees.

How we can help support SMSF trustees

Although the above can seem daunting at Blue Chip Financial, we provide comprehensive support services for SMSF trustees to ensure their SMSF remains compliant at all time. From accounting, investment and financial advice to estate planning, insurance, mortgage and property services, we’re proud to help trustees manage their retirement savings with an SMSF. If you are considering an SMSF, find out how our supported SMSF service can help you.