What To Know About Self Managed Super Funds

Say SMSF ten times fast… It’s a tongue twister and often a point of confusion for many when considering their superannuation options. Self-managed super funds are worth knowing about – here are the basics to get across.

Top Highlights

• SMSFs offer full investment control, including property, but come with strict compliance, legal responsibility, and annual audits regulated by the ATO.
• Compared to traditional super funds, SMSFs allow more asset flexibility but require hands-on management and are best suited for balances over $250K.
• Setting up an SMSF requires expert help, Future Advisory supports setup, strategy, and compliance in partnership with financial planners and auditors.

What is a Self-Managed Super Fund?

A Self Managed Superannuation Fund (SMSF) is a private super fund that gives members full control over their retirement investments, but with great freedom comes serious responsibility. The fund must be set up for the sole purpose of providing retirement benefits for its members. Some key features of SMSFs include:

• Privately managed by up to six members
• Established with a trust deed
• Regulated by the ATO under SIS legislation
• Designed solely for retirement benefits (the “Sole Purpose Test”)

What are the benefits of an SMSF?

Put simply, the benefit of an SMSF is being able to have more control over the choice of investments you make – it’s the primary reason that people choose to establish an SMSF.

For example, some people may choose to set up an SMSF as part of their overall business structure and make use of the potential to hold commercial property in their SMSF and rent it to their trading entity.

With greater control, however, comes greater responsibility, and the SMSF Trustee must have a strong understanding of the rules and regulations that are relevant to superannuation in general, as well as the rules that are specific to SMSFs. There are restrictions around borrowing in an SMSF. Borrowing is only allowed under Limited Recourse Borrowing Arrangements (LRBAs), for example, as well as particular rules on what type of investments can be held in the fund, how transactions need to be treated between any related entities, and annual compliance and documentation obligations.

SMSF vs Retail/Industry Super Funds

Choosing between an SMSF and a traditional retail or industry super fund? It all comes down to how much control you want, what you’re planning to invest in, and how hands-on you’re willing to be. Here’s a quick comparison to help you weigh up the differences:

Who can have an SMSF?

There are some rules around who can be a member of an SMSF, and all members must also act as its trustees. SMSF members/trustees cannot:

• Have previously been a disqualified person by SMSF regulators
• Be a registered bankrupt
• Have an employer/employee relationship with fellow members unless they are relatives

Even though many people would be eligible to establish an SMSF, consideration needs to be given to the strict rules, the time required to monitor investments, and the significant annual compliance costs. For these reasons, even though there is no minimum investment required, there should be significant funds available for investment (typically in excess of $250k) in order to make the establishment of an SMSF worthwhile.

What Can an SMSF Invest In?

The power of an SMSF lies in its investment flexibility, but there are still rules.

What are the tax implications of an SMSF?

Complying SMSFs are generally taxed at the concessional rate of 15%. To be a complying fund, the SMSF needs to satisfy lodgement and other superannuation rule requirements, be audited by an independent auditor each year, and be deemed as complying by regulators.

Do I need help creating an SMSF?

As with all financial decisions, it’s best to speak with a financial planner and accountant to work out whether an SMSF is the right fit for you. Consideration needs to be made around initial and ongoing costs, compliance requirements, and whether the setup will have a corporate trustee or an individual trustee.

Where can Future Advisory help in regard to SMSFs?

Future can help by setting up your SMSF in conjunction with the advice from a financial planner, and we are also able to assist with ongoing compliance each year. All SMSFs need to pass an annual audit by an independent auditor, which we organise on your behalf.

For Example

There’s a savvy Director named Sarah who runs a company that rents a factory to produce the most magical widgets you could ever imagine. As her business grew, she dreamed of owning a factory instead of renting one.

Mid brain storm one day, Sarah had an epiphany: “What if I could buy a factory using my retirement savings and then rent it back to my company?” And so, the quest to set up a Self Managed Super Fund (SMSF) began.

Sarah embarked on a mission to gather the wisest advisors in the land: Accountant Amy, Lawyer Lucy, and Financial Planner Fiona. Together, they guided her through the labyrinth of setting up an SMSF, navigating complex tax laws and regulations with ease.

First, they established the SMSF with Sarah and one other member, her wife, creating a trust deed outlining the fund’s rules and appointing a trustee to manage the fund’s assets. They also registered the SMSF with the Australian Taxation Office (ATO), acquiring a tax file number (TFN) and an Australian Business Number (ABN) for the fund.

Next, Sarah and the other member of the SMSF (her wife) rolled over their existing superannuation balances into the newly formed fund. Financial Planner Fiona helped them create a well-crafted investment strategy, including the grand plan to purchase the factory of Sarah’s dreams.

Once the SMSF had sufficient funds, Sarah and her fellow trustee sought out the perfect factory for the company to lease. With the help of Lawyer Lucy, they ensured that the lease arrangement was set up at arm’s length, charging a fair market rental rate, and adhering to all regulations to avoid penalties.

To discuss SMSFs or other superannuation questions, get in touch.

FAQs

Is an SMSF better than a retail super fund?

It depends. SMSFs offer control and flexibility, but require more time, knowledge, and compliance effort.

What’s the minimum amount to start an SMSF?

There’s no legal minimum, but generally $250k+ is recommended to make it cost-effective.

Can my SMSF buy property?

Yes, but only under strict rules, and usually commercial property leased at market rates.

How is an SMSF different from a retail or industry super fund?

SMSFs offer more control over investments like property and shares, but also require members to manage compliance and administration. Our financial planning team can help you weigh your options.

What can I invest in with an SMSF?

SMSFs can invest in shares, managed funds, term deposits, and commercial property. However, rules apply, especially for related party transactions. For tailored guidance, contact our accountants in Melbourne CBD.

Is there a minimum balance recommended to start an SMSF?

While there’s no legal minimum, SMSFs are typically most cost-effective with $250,000+ in assets due to setup and compliance costs. Our VCFO services can help you assess your readiness and financial strategy.

Are SMSFs tax-efficient?

Yes, if compliant, SMSFs are taxed at a concessional rate of 15%. You’ll need to meet lodgement, auditing, and contribution rules. Let our Xero accountants automate your reporting and keep you on track.

Can I use my SMSF to buy property for my business?

Yes, your SMSF can purchase commercial property and lease it to your own business at market rates. This strategy needs careful structuring. Our Accountants in Narre Warren can help ensure compliance.

Who can be a trustee of an SMSF?

Trustees must not be disqualified persons or bankrup,t and usually include up to 6 members, all of whom must act as trustees. Unsure about the rules? Our financial planning experts can clarify eligibility.

Can I manage my SMSF bookkeeping myself?

You can, but it’s complex. A small business bookkeeping service ensures your SMSF stays compliant with ATO regulations and keeps all records audit-ready.

Can my SMSF affect my home loan or property goals?

Yes, SMSF assets and income can be factored into your financial profile when applying for loans or buying property. Consult our mortgage broker to explore SMSF strategies in line with your goals.