Self Managed Super Funds

Do-it-yourself (DIY) super via a self managed super fund (SMSF) is becoming an increasingly popular choice for people who want to have control of how their superannuation monies are invested. While there are undoubted benefits in establishing an SMSF, running your own fund can be complex and there are many things you have to consider. We suggest you seek further information on the ATO website at www.ato.gov.au to download the booklets on running a SMSF. 


What is a SMSF?

A SMSF is a superannuation trust where assets are held and managed on behalf of up to four members to provide future retirement benefits. In most cases, all members of an SMSF must be trustees of the fund or directors of the fund’s corporate trustee. The Superannuation Industry (Supervision) Act 1993 and related legislation govern Australian superannuation funds and the Australian Taxation Office (ATO) is responsible for overseeing the regulation of SMSFs. 


Why establish a SMSF?

The three key reasons for establishing your own SMSF are control, flexibility and investment choice. The trustee of your fund (you) decides on your fund’s investment strategy and chooses what your fund invests in. Set up properly, the fund can even invest in assets as diverse as art and property. Additionally, like all super funds, an SMSF receives concessional tax treatment. The top tax rate for the investment earnings of your SMSF is 15% – probably well below the top tax rate applicable to your own income. It’s important to note that this tax concession is only available where you operate a ‘complying fund’ – that is an SMSF that complies with all the rules set out by SIS and the ATO. 


How much does it cost to set-up and administer?

A DIY Fund costs $880 (incl GST) to set-up and costs from $1,650 (incl GST) to administer if Henderson Maxwell is managing your portfolio. Some people choose to use a corporate trustee, a propriety limited company, to act as trustee and that would add around $880 to the set-up cost. Discuss the appropriateness of this with your adviser when you make contact with us. 


How do I run my fund?

You will need a written investment strategy, regular minutes detailing changes to your investment decisions and the usual annual tax returns and audit for the fund. You must ALWAYS comply with the regulations and understand the compliance requirements. 


How can Henderson Maxwell help me?

Henderson Maxwell has a specialty in Self Managed Super Funds coupled with full time staff dedicated to this specialty area. We can set-up a fund, update an existing trust deed, assist with the commencement of pensions, construct a written investment strategy, undertake the annual administration and assist with the initial strategy of rollovers, in-specie transfers, capital gains tax issues and all the normal strategic superannuation advice that is required to optimise your financial situation. 


What else?

While there are undoubted benefits in establishing an SMSF, running your own fund is complex and there are many things you have to consider, including:

• Your investment strategy – writing it and sticking to it
• The administration of your fund – completing paperwork correctly on time 
• Compliance with superannuation and other laws – there are a lot of them

The key areas of compliance for an SMSF relate to:

• Sole purpose test - the sole purpose of the fund is for retirement
• Documenting an investment strategy and investing in line with it  
• In-house asset rules 
• Conducting all transactions at arm’s length 
• Prohibition against borrowing (there are exceptions)
• Related party transactions such as buying property from a member 
• Prohibition on financial assistance to members and their relatives

Understanding the rules and obligations

Underpinning the SMSF regulatory regime is the sole purpose test – the sole purpose of your fund and all its investments must be to provide retirement benefits to fund members. In line with this, trustees are required, first and foremost, to have an investment strategy, which they invest in accordance with. 

While there are no restrictions on SMSFs investing in collectibles such as art, the ATO has highlighted that the sole purpose test means that members cannot enjoy a benefit from the investment prior to preservation age, when they can legitimately access their benefits if they have retired. This means that, unless strict conditions are met – like in the case of leasing the art to a member or related party in line with the in-house asset and arms-length rules – the art can’t be displayed in the trustee’s home or office. The in-house asset rules mean that the particular investment can make up no more than 5% of the fund’s total assets and the arms-length requirement means that is must be leased to the related party at commercial rates. 


Why Choose an Administrator to assist you?

In fact, many people who choose the DIY super path use a specialist SMSF administrator to undertake the onerous compliance activities. This allows them to enjoy the benefits of investment control and flexibility without as much paperwork. Your fund’s compliance with superannuation laws is essential and you’re legally responsible for making sure your fund complies with all the rules – even if you pay for professional advice and/or administration. While the ATO’s regulatory approach to SMSFs has focused on education and information, it’s fast becoming more aggressive in its position on fund compliance.

*Please note that Henderson Maxwell’s Self Managed Super Fund Administration service is a separate company to the financial planning arm of the business for licensing and compliance purposes. It operates under the name Henderson Maxwell Accounting and Taxation Pty Ltd.

For more information on how we advise on superannuation, speak to an adviser on 1 300 665 439 or book an appointment now.