What Is A Self Managed Super Fund?
So what exactly is a self managed super fund? While having control over your own super and financial future can be appealing, it's not for the faint of heart.
In Australia, superannuation, or just "super", includes the practice of money being put aside by you or your employer over your working life for you to live on when you retire. Designed to reduce Australians potentially relying on government benefits into their old age, superannuation was made compulsory in 1992.
However, as of 2020 - approximately one third of all superannuation funds are self managed. With an aging population, many Aussies can see the light at the end of the working tunnel, and have taken charge of their own financial future in droves. This method has particularly grown in popularity amongst small business owners, and those edging closer towards retirement. So what’s the catch? Well, if you’re considering self managing your superannuation it’s important to fully comprehend how they work - and what could potentially go wrong.
Please note, the information provided on this website is general advice only and you may wish to consult a licensed financial advisor regarding your personal situation.
What Is A Self Managed Super Fund And How Does It Work?
A self-managed super fund - or SMSF - is regarded as a private super fund that you manage yourself, as opposed to an industry or retail super fund.
When you make the choice to manage your own super, you put the money you would normally allocate to a retail or industry super fund into your own SMSF instead. One of the key points of difference is that you also choose the investments and the insurance to protect (and ideally grow) your financial asset. SMSFs allow up to four members, usually consisting of family.
SMSFs are established for the sole purpose of providing financial benefits to members in retirement and their beneficiaries on death. 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 lump sums and 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.
As an SMSF trustee, you are responsible for making investment decisions and ensuring implementation of an investment strategy for your fund. SMSFs also have strict administrative obligations that require you to maintain records, provide financial statements, complete a tax return and organise an independent audit. It’s for this reason that many trustees often engage professional SMSF specialists to help them manage their accounting, auditing and tax reporting, as well as provide financial and investment advice. However even with professional financing advice, a trustee is ultimately responsible for the decisions and administration of their fund.
The Benefits Of Self Managed Super Funds
If “what is a self managed super fund?” has crossed your mind recently, then there’s a high chance that you’re already debating ways to improve your financial outlook upon retirement. When handled correctly, some of the benefits associated with a SMSF can include:
Wider investment choices such as residential and commercial property, collectibles, term deposits and direct shares
Small business owners are able to have business property owned by their SMSFs and then leased back to the business
SMSF members can now purchase large single assets such as commercial property that may have otherwise be outside of their reach
Gives you more flexibility than any other superannuation structure when it comes to contributions, the timing of contributions, allocating earnings to particular members and implementing “reserves”
When it's time to move to retirement, an SMSF allows you a streamlined transition from the accumulation phase to the pension phase without needing to sell down assets, thus avoiding capital gains tax and other transaction costings
Asset protection in the unforeseen event of litigation or bankruptcy
Where To Source Help With Self Managed Super Funds
While the above will surely sound appealing, the responsibilities associated with SMSFs cannot be understated. As a trustee, you should make sure you have a comprehensive understanding of investment options and markets. If not, poor investment decisions will have a direct impact on the assets of your fund and the retirement savings of other members.
In addition, the laws and legislation that surround self managed super funds shouldn’t be taken lightly either. If the Australian Taxation Office considers there to be a breach of these obligations and responsibilities, it can impose high penalties on trustees who face personal liability, with serious breaches resulting in imposed tax rates of up to 47%. Needless to say, you’re going to need the help of a licenced professional if you want to get self managed superannuation right.
At Muro, we are more than just accountants - we offer our clients strategic business advice, and ongoing support to help them reach their business and financial goals. Just one of our many services includes helping our clients to navigate the complexities of self managed superannuation funds, to ensure that their super is working for them. Get in touch with us at Muro today to ensure that you’re on the right path for success as we head into 2021.
Please note, the information provided on this website is general advice only and you may wish to consult a licensed financial advisor regarding your personal situation.