Let’s start from the basics: What is an SMSF?
An SMSF is NOT an investment. It is a type of superannuation fund just like your retail or industry superannuation fund – think of it as a vehicle or vessel that you would utilise to invest.
Just like any superannuation fund, the main objective of an SMSF is to invest members’ funds for retirement. The fund itself is not an investment but an entity that can offer members (you) more control over their retirement funds than other superannuation funds.
Benefits of an SMSF
- An SMSF gives members greater control over their retirement funds by giving them the option to develop their own investment strategy and ability to buy or sell individual investments.
- Members also have access to a wider choice of investment options such as listed shares, real estate, corporate bonds and managed investments.
- Members can actively participate in management of the SMSF – giving them a stronger sense of safety knowing the monies are being invested by them.
- An SMSF could potentially provide better tax advantages than other forms of superannuation.
- The annual fees for an SMSF could also be potentially cheaper than retail or industry superannuation funds.
- An SMSF can either have an individual or a company as a trustee.
- The SMSF must have four members or less. Each member must generally be a trustee of the fund (if the trustees are individuals) or if the trustee is a company, each director of the company must generally be a member. Members cannot be an employee of another member (unless they are related).
- If there is only one member then that member must be one of two trustees or the sole director of a company that is a trustee.
- The SMSF must have a trust deed that meets the requirements of the Superannuation Industry (Supervision) Act 1993 (SIS).
- The SMSF must be registered with and regulated by the Australian Tax Office (ATO).
- An SMSF is run by their own members for their own retirement benefits. The SMSF’s investments must be managed in the best interests of the members in accordance with the law.
- Members are responsible for complying with super and tax laws.
- A trustee of an SMSF cannot be renumerated for their services as a trustee.
- Trustees must keep money and other assets of the SMSF separate from their own personal assets. Money belonging to the SMSF must not be used for personal or business purposes.
- Just like any other superannuation fund, the SMSF’s money can only be released when a member reaches retirement, attains a ‘prescribed age’ or on the death of the member.
There are several reasons to start an SMSF, however it is not suitable for everyone – and if you are not familiar with investment strategies and superannuation tax laws, it is highly recommended that you seek professional advice from a financial planner before setting up your own SMSF.