Wilson & Assoc Chartered Accountants

Self-Managed Superannuation Fund(SMSF) Part 1 – An Introduction

Self-managed superannuation fund (SMSF) allows you to take control of your retirement savings. Below is a brief introduction to SMSF.

 

What is an SMSF?

An SMSF is a private superannuation fund that you can manage yourself. It is an investment option that requires a fair amount of knowledge, understanding and expertise in order to prevent possible risks or breach of legal obligations.

 

Who is SMSF for?

A SMSF is most suitable for those who are looking to:

     •   Have direct control over their superannuation

     •   Be involved in investment decisions

     •   Gain potential strategic flexibility and estate planning benefits associated with SMSFs

     •   Have a significant superannuation balance

 

How does it work?

SMSFs work the same as any other superannuation fund however, there are a few differences when it comes to the administration and government regulations compared to other funds. This is because within an SMSF you as a member are entirely in control and responsible for the management and decision-making processes of the fund.

What are the pros and cons of SMSFs?

Pros

     •   Offer a wider range of investment options

     •   More flexibility and control

     •   Effective tax management and accountability

Cons

     •   Greater deals of responsibility and understanding

     •   Legal and compliance obligations

     •   More costly (dependent on type of investment)

     •   Management can be time consuming.

 

What are Trustees?

An SMSF is in essence just a trust and like any trust is run by the trustees.  The two types of structures: individual and corporate. When using an individual structure all members are required to be trustees themselves and using a corporate structure requires all members to be directors of the corporate trustee.

Comparison of the Trustee structures

 Individual

  • Two to six members.
  • Each member of the fund must be a trustee, and each trustee must be a member of the fund.
  • A member cannot be an employee of another member – unless they are relatives.
  • Some State and Territory laws restrict the number of trustees a trust can have to less than six. As an SMSF is a type of trust, it is important that clients seek professional advice to help understand if their SMSF is impacted by these restrictions. Alternatively, they could restructure or structure their SMSF to have a corporate trustee, where each member is a director of that corporate trustee (see below).
  •  

Corporate Trustee

  • Two to six members.
  • Each member of the fund must be a director of the corporate trustee, and each director of the corporate trustee must be a member of the fund.
  • Directors of corporate trustees need to have a director identification number  (director ID).
  • A member cannot be an employee of another member – unless they are relatives.

Who can and who can’t be a trustee or director?

An SMSF generally allows no more than 6 members at one time and must be 18 years or older.  Members under the age of 18 require a parent, guardian or legal representative to act on their behalf.

You can’t be a trustee if you have:

     •   Convicted an offence involving dishonest conduct

     •   Received a civil penalty under the superannuation legislation

     •   Been insolvent or under administration (an undischarged bankrupt)

     •   Disqualified from acting as a trustee

As trustees/directors you must have a written consent of appointment and sign a Trustee declaration within 21 days of appointment. These documents are to be retained for 10 years, failure to comply may result in possible penalties.

As a trustee/director you are responsible for running the fund and making the decisions, hence it is important that you:

     •   Act in integrity and honestly for all matters

     •   Act in the best interest of all members

     •   Have a full understanding of your responsibilities and duties

     •   Ensure the SMSF complies with all legal obligations

     •   Keeping the fund’s assets separate from the trustee’s own affairs

 What are the responsibilities of a trustee or director

Whether you’re a trustee or director of a corporate trustee, you are responsible for running the fund and making decisions that affect the retirement interests of each fund member, including yourself.

As a trustee or director, you must:

  • act honestly in all matters concerning the fund
  • act in the best interests of all fund members when you make decisions
  • manage the fund separately from your own superannuation affairs
  • know, understand and meet your responsibilities and obligations
  • ensure that the SMSF complies with the laws that apply to it.

All trustees and directors are equally responsible for managing the fund and making decisions. You are responsible for decisions made by other trustees, even if you’re not actively involved in making the decision.

You can appoint other people to help you or provide services to your fund (for example, an accountant, administrator, tax agent or financial planner). However, the ultimate responsibility and accountability for the SMSF’s actions lie with you, as trustee or director.

As an individual trustee or director of a corporate trustee, you may be personally liable to pay an administrative penalty if certain laws relating to SMSFs are not followed.

Other members of the fund can take action against you if you don’t follow the terms of the trust deed. Any fund member who suffers loss or damage because of a breach of any trustee duties may sue any person involved in the breach.

How Wilson & Assoc can help?

Our team has experience in managing all business structures from registration to exit processes. We will help you understand the processes and guide you through each step of the way.

Stay tuned for Part 2 – Contributions and rollovers, investing, paying benefits, winding up and exit strategy.

Source: Australian Tax Office

About Wilson & Assoc

Wilson & Assoc Chartered Accountants provides taxation and business advisory services to individuals, investors and businesses wherever you are based. We provide specialist services to startups and health care providers.

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DISCLAIMER

Information provided on this website is general information only and should not be treated as professional advice.  You may not rely on the basis of currency or accuracy of the information. We disclaim liability to all persons or organisations for any loss or damage suffered as a result of such reliance.  Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation.

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