A self-managed super fund (SMSF) is a private super fund that individuals can manage themselves, meaning that they can choose the investments and the insurance. An SMSF is a popular and effective way of saving for retirement. However, being the trustee of your own super fund is a big responsibility and can come with a risk, so it’s important to know the rules before starting one.

Here are some important things to consider when starting a self-managed super fund (SMSF):

Limit to the Number of Members 

As of July 2021, a Self Managed Super Fund can only have six members. All members of the super fund are considered trustees. All trustees are responsible for the running of the fund and need to act in the best interests of all other members.

Trustees

Trustees are responsible for the investments in the fund and all the decisions relating to those investments, which is why members need to have a thorough understanding of the investment options available to them. All SMSFs have a trust deed that sets out guidelines for the powers that the trustees have, including investment decisions. Trustees need to abide by the superannuation and taxation laws to ensure that the fund is entitled to the superannuation tax concessions. All members of the SMSF are responsible for any possible breaches.

Must Be a Complying Super Fund 

For an SMSF to be considered a complying Australian super fund, it must meet the definition of an Australian superannuation fund for tax purposes. The fund needs:

• To be established in Australia, or the assets of the fund are located in Australia.
• To have passed the Central Control and Management Test (prove that work is carried out in accordance with the guidelines expected of directors under applicable Australian law).
• Pass the Active Member Test (members of the fund are contributors to the fund).

Choose a Retirement Planning Strategy 

There are various retirement planning strategies that can be used with an SMSF. Seek help from a financial adviser to ensure that you’re getting the most out of your SMSF and meeting your retirement planning goals and objectives.

Set and Define Investment Strategy 

A trustee of the super fund needs to establish and implement an investment strategy for the super fund. An effective strategy will outline investment objectives and set out the investment methods the fund will adopt so it can achieve these objectives.

Abide by the Investment Rules 

The Trustees need to be aware of any restrictions that may prevent SMSFs from making certain investments (borrowing under particular circumstances and lending fund money to another member or relative). Speaking to a financial adviser will help ensure that an appropriate investment strategy is set.

Sole Purpose Test 

The Sole Purpose Test for an SMSF ensures that investments are kept for the purpose of providing benefits to fund members once they have retired. All trustees of the SMSF must comply with the test to maintain the tax concessions available.

Keep Bank Accounts/Funds Separate 

Members of the super fund need to ensure that all assets of the fund are kept separate from their personal funds and that all members need to keep separate bank accounts and investments.

Follow the Rules 

An SMSF must adhere to all regulatory requirements and superannuation and taxation laws. When setting up a super fund, there should be a deed set up by a professional like a solicitor who specialises in SMSFs. A deed may also need to be updated over time to reflect any changes in superannuation laws.

Employ the Help of a Professional 

Trustees can employ the help of a professional (like a solicitor, accountant or financial adviser) to assist with tasks like tax returns, administration, reporting and auditing. However, ultimately, the trustee will still have complete control and responsibility of the fund.

Core Purpose

An SMSF must be maintained to provide benefits to each member in the event of:

• A member’s retirement
• Members reaching an age where they can access their super.
• After a member’s death and when their benefits are provided to their heirs or legal representation.

Ancillary Purpose 

The ancillary purpose for maintaining an SMSF includes:

• Termination of a member’s employment by an employer who had made contributions to the SMSF.
• A member has to stop working because of ill health.
• Death of a member after retirement, where benefits are paid to their heirs or legal representation.

At Xperion, we help guide you through the complexities listed above and give you advice on how to keep your SMSF complying at all time. To find out how we can help you with a self-managed super fund, book a non-obligation appointment with us or contact us at (07) 3608 4174.