Andrew from Vista Financial Posted July 23 Share Posted July 23 What is an SMSF? A Self Managed Superannuation Fund (SMSF) is a superannuation fund controlled by its members. The primary goal is to provide retirement benefits for its members. Key Responsibilities Trustees: Make all decisions regarding the operation and investment of the SMSF’s assets. Compliance: Must follow strict rules to ensure the SMSF operates correctly. Trust Deed: Establishes the fund and outlines operational rules. Investment Strategy: A written strategy is required for investment decisions. Failure to Comply Non-compliance can result in fines, loss of tax benefits, and criminal charges. SMSF vs. Mainstream Superannuation Funds Feature Mainstream Funds (Retail, Industry, Public Offer) SMSF Investment Options Limited, determined by the fund Broad, includes direct property, art, etc. Number of Members Unlimited Up to 6 members Fund Management Fund manages administration and compliance Trustees manage all aspects; some tasks can be outsourced Control Fund makes administration and investment decisions Greater control by trustees Licensing Regulated by APRA Compliance-based regulation by ATO Insurance Group cover at lower premiums, default levels of cover Retail insurance only, must document insurance considerations Investment Strategy No documentation required Must have a written and regularly reviewed strategy Costs Combination of fixed and percentage fees Mostly fixed costs; economies of scale with larger funds Time Commitment Minimal involvement Time-consuming; requires active decision-making and meeting documentation Estate Planning Trustee makes the final decision Trustees control distribution of benefits Winding Up/Exit Easy to roll out, costs vary Complex and costly, includes various fees Compensation Eligible for fraud/theft compensation Not eligible for compensation Complaints Access to independent complaints service Must resolve complaints internally, may require legal assistance Establishing an SMSF Steps to Set Up a Trust and Trust Deed: Appoint Trustees: Either individual or corporate. Admit Members: Determine who will be part of the fund. Appoint Advisers: Such as administrators and auditors. Trustee Meetings: Establish guidelines for meetings and documentation. Investment Objective: Set and document the fund's investment strategy. Insurance Needs: Assess and document the insurance needs of members. Member Accounts: Establish individual accounts for members. Regular Reviews: Implement a routine for reviewing the fund's performance and strategy. Ongoing Costs of an SMSF Annual Costs Other Costs ATO supervisory levy Investment management fees Financial statement and tax return Accounting and book-keeping fees Professional investment advice fees SMSF establishment costs Annual independent audit fees Corporate trustee set-up and annual fees Actuarial certification fees Ongoing administration costs Investment Strategy Trustees must create a written investment strategy that considers: Diversification: Ensure a mix of different types of investments. Risk and Return: Assess the potential risks and returns of investments. Cash Flow: Plan for cash flow needs to cover benefits and expenses. Insurance: Determine if personal insurance is necessary. Member Needs: Reflect the circumstances of the fund's members. Sole Purpose Test SMSFs must be established to: Provide benefits for members upon retirement. Provide death or ancillary benefits to dependents upon the member's death. Related Party Transactions Permissible Investments from Members: Listed securities. Units in widely held unit trusts. Business real property used for business. Gearing (Borrowing to Invest) SMSFs can borrow under a Limited Recourse Borrowing Arrangement (LRBA) to invest in eligible assets like property and shares, with specific rules. Important Considerations: Ensure the trust deed allows borrowing. Check the fund's cash flow capability. Comply with Superannuation Act and ATO requirements. Consider insurance needs and contribution caps. Understand the implications of the investment strategy and associated costs. Publications and Resources Online Videos: Step-by-step guides available at ATO SMSF. Disclaimer This information is for general understanding and not personal financial advice. Laws may change, so consult a professional for current advice. Quote Link to comment Share on other sites More sharing options...
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