Self Managed Super Fund (SMSF) takes one of the most important investments in your life out of the hands of unknown investment advisors and into yours, but there is more to this than a couple of investment decisions.
Setting up a Self-Managed Super Fund (SMSF)
Running an SMSF gives you control over where your super money is invested, and access to a greater choice of investments compared to managed super funds, such as retail or industry funds.As an SMSF trustee, you can invest in direct property, artwork and virtually any valuable asset. You can even purchase your business property. Before you get too excited about the positives of running a SMSF, you need to ask yourself three key questions:
- Are you commited?
- Are you familiar with investing?
- Do you have enough superannuation to begin?
10 SMSF basics of DIY super
If you’re running an SMSF, then you’re obviously aware that being a Trustee and member is a very different experience to belonging to a large super fund. In a large super fund, someone else looks after your superannuation benefits. As a SMSF trustee, you make all of the decisions, and have responsibilities for Compliance, Administration, Reporting and Tax obligations.
1. You’re in control
If you put in the time to understand the rules, and seek advice when necessary the prospect of complying with the superannuation laws shouldn’t deter you from running a SMSF. If you do find the compliance too overwhelming, you can delegate some of the tasks, but not the responsibility, to service providers (accountants), or in extreme cases, you can wind up your SMSF
2. You must comply with the sole purpose test
In the SMSF trustee declaration that new trustees must sign, the trustee declares that ”it is my responsibility to ensure the fund is maintained for the purpose of providing benefits to its members upon their retirement (or attainment of a certain age), or for beneficiaries if a member dies”
3. You must follow your fund’s trust deed
The trust deed is your SMSF’s rule book. As an SMSF trustee, you must act in accordance with your trustee responsibilities as set out in your fund’s trust deed.
4. You need to comply with the SIS Act
The superannuation laws are set out in the SIS Act, and the Superannuation Industry (Supervision) Regulations 1994. An SMSF, as with all super funds, must comply with the SIS Act and regulations.
5. You need to formulate an investment strategy
The super laws demand that trustees formulate and implement an investment strategy. And when formulating your strategy you need to take into account:
- Likely risk and return of any investment
- The fund’s investment objectives
- Diversification — investing across a broad range of assets, and any risks from investing in a small number of assets, or a single asset
- Liquidity — the ability of the fund to pay taxes, expenses and members’ benefits.
As an SMSF trustee you must also regularly review your fund’s investment strategy.
6. You cannot break any investment rules
Besides the requirement to create an investment strategy for your SMSF, you must also ensure your SMSF doesn’t breach any of super’s special investment rules. The SMSF trustee declaration that new SMSF trustees must sign clearly lists these rules
7. You must arrange for your SMSF to be audited
The SIS Act states that trustees of a SMSF must appoint an ‘approved auditor’ in each income year to audit the fund’s operations of the fund, and that the auditor must provide the trustees with an audit report in the approved form. You can only appoint an approved auditor to conduct these audits. An approved auditor must be a registered SMSF auditor licensed under ASIC.
8. You must arrange to lodge tax and compliance returns
Your SMSF must lodge a return each year with the ATO on or before the lodgement due date. When lodging your fund’s return, you also must pay the annual supervisory levy of $259, which is now required to be paid in advance.
9. You must keep your fund assets separate from your personal finances/assets
You wear a very distinctive cap when you take on the role of SMSF trustee — you act on behalf of fund members, including yourself. Legally, your role as a SMSF trustee is different from your role as fund member, which means you must manage your SMSF separately from your personal and business affairs.
10. You should seek professional advice, when necessary
You need to seek professional advice before you set up your SMSF, and seek advice on an ongoing basis, when necessary:§ Even if you choose to do everything yourself, advice at the outset and regular chats to a chosen adviser are essential.§ Even if you choose to use that adviser as a coach or mentor, instead of getting him or her involved in the nuts and bolts of your fund.