Self-Managed Super Funds
This article makes up part of our whitepaper ‘Everything you need to know about Self-Managed Super Funds’, you can download the full version here.
What is a Self-Managed Super Fund?
A Self-Managed Superannuation Fund (SMSF) is a type of superannuation fund used by Australians to accumulate savings for retirement. It is important to note that a SMSF is a type of trust structure, with resulting trust obligations which we will explore later.
SMSFs have a few distinguishing features that differentiate them from other superannuation funds in the market place. These features include:
- Membership – SMSFs are restricted to just four members. In the majority of cases there are husband and wife funds, however there is no requirement that the members be related, unless one member is an employee of another.
- Regulation – A SMSF differs from other superannuation funds by being regulated by the Australian Taxation Office, whilst large funds are all regulated by APRA.
- Control – SMSFs are controlled directly by the members, themselves, as trustee, or as directors of a company that acts as a trustee for the fund.
- Rules – SMSFs are subject to the same rules and tax laws as other superannuation funds, however they have some additional rules that give them some distinct advantages.
Advantages of SMFSs
So why do so many Australians opt for a SMSF as their chosen retirement vehicle?
The investment choice for SMSFs is far greater than other funds. From Gold Bullion to Investment Real Estate, the choice is much less restricted than a public fund.
Due to economies of scale, and the fact that most SMSF costs are fixed in nature, SMSF’s become relatively cheaper as the size of the fund increases. In fact depending on the size of your fund, there is a good chance that it may end up being substantially more affordable than most other funds in the marketplace.
As a member you have complete control over the fund’s assets, from where it invests, to how and when to pay pensions. Hence, there is greater transparency for you than other super fund options.
Whilst the tax laws are generally the same between all superannuation funds, an SMSF has greater control over tax liability due to its ability to control the timing of asset sales, choice of assets, and income streams.
Generally an SMSF has greater flexibility around the payment of funds to the beneficiaries of a deceased member.
Disadvantages of SMSFs
We don’t pretend that SMSFs are for everybody. They’re not, so it is important to lay out the realistic disadvantages that you should be aware of:
Having your own SMSF means that you have become a trustee, and the law requires trustees to act responsibly on behalf of beneficiaries. This will mean that you need to comply with all superannuation and tax laws, and manage the money in a prudent fashion.
Administration & Compliance
An SMSF will generally involve more paperwork than an ordinary superannuation fund, although there are many tools and services that can dramatically reduce this paperwork.
Our friendly politicians have a penchant for constant rule tampering. As a trustee of a fund, you need to be aware of the rules and ensure that your fund is compliant. The penalties for non-compliance are harsh, and in law, ignorance is not a defence.
Note – As the majority of SMSF’s costs are fixed, small balances are generally uneconomical. The ATO recommends that you don’t commence an SMSF until you have a minimum balance of at least $200,000.
If you would like some help regarding Self-Managed Super Funds Stanford Brown has been assisting clients for over 30 years, you can call us on (02) 9904 1555.