Frequently asked questions
- What is a self managed super fund?
- What are the main elements of a SMSF?
- What are the benefits of a SMSF?
- More on the ability to borrow
- How can Super Professionals help me?
- Find out more - seminar
Essentially, a Self-Managed Superannuation Fund is a special type of trust. These trusts are regulated by the Superannuation Industry Supervision Act 1993, otherwise referred to as SIS. The administration of the legislation as it relates to SMSFs is performed by the Australian Taxation Office (ATO).
It has a trust deed. The deed is a particularly important document as it specifies a set of rules that the trustees must adhere to in the running of the fund. These rules must be consistent with SIS.
It has trustees. The trustees of the fund can be either individuals or a company. To qualify as a SMSF, the trustees must meet a number of criteria. These criteria include but are not limited to:
- For individuals, SIS specifies (among other requirements) that all trustees must be members of the fund.
- A trustee cannot be an employee of another trustee unless they are related and no trustee can be paid to act as trustee.
- The rules are similar where a company is the trustee and differs only in the requirement that all members be directors of the trustee company. It is possible to have a single member fund.
- It has members. Members are people who have accounts in the SMSF. They must satisfy the rules above. They can get money into a SMSF in a number of ways, including but not limited to:
- rolling existing superannuation over.
- making personal contributions.
- directing their compulsory Superannuation Guarantee (SG) to be made to their SMSF.
- salary sacrificing into their SMSF.
It is important to understand that while the trustees of a SMSF have control over the investments made by the fund, strict rules apply to trustees in relation to investing the assets of a SMSF. Generally, the investments are governed by the funds investment strategy and SIS.
Some of the investment restrictions include but are not limited to:
- purchasing assets from members (apart from listed securities or business real property).
- making loans to members or associates.
- carrying on businesses.
The usual preservation rules apply to funds held in a SMSF and the trustees must satisfy the ‘Sole Purpose Test’. What this means is that the trustee must be able to demonstrate at all times that the fund is being managed for the sole purpose of providing for the retirement of the members, or for their dependents should they die.
While SMSFs offer control over investments and are a low tax environment, trustees must take their obligations seriously as the penalties for breaches can be up to $220,000 (civil) or five years imprisonment (criminal).
One should only establish an SMSF in consultation with a qualified professional who will consider their circumstances, provide advice and assist in the establishment and ongoing compliance of the fund.
(*’The popularity of SMSF’s’ 13/03/2008 Superannuation Australia.) [What does this relate to? There is no ‘*’ to refer this section to.
For the purposes of this information document, the benefits of a SMSF are in the context of a comparison with retail or public offer superannuation funds.
However, before discussing the specific benefits of a SMSF, we will quickly outline some of the benefits of superannuation generally. They include:
- Income in accumulation phase is taxed at 15%.
- Income is tax free when the fund is in pension phase.
- Benefits can generally be accessed on the satisfaction of certain conditions after age 55.
- If benefits are accessed after age 60, they will be tax free.
- Contributions are tax deductible under certain circumstances, but generally up to $50,000.
- Asset Protection, assets held in superannuation may not be able to be accessed by creditors depending on the circumstances.
- Estate planning, superannuation can provide more certainty than a will under some circumstances.
Benefits of a SMSF
- Control over the investments.
- Access direct shares or direct property, therefore avoiding the need to use managed funds.
- Aligning investments with business goals.
- A SMSF is allowed to purchase business real property from a member or other party to be utilised by associated businesses on a commercial basis. This is a particularly helpful use of a SMSF structure as since 24th September 2007, the borrowing restrictions have been relaxed to allow SMSFs to borrow under certain circumstances.
- Reduced investment and administrative costs.
- SMSF ongoing expenses are generally limited to administration, accounting and audit fees in addition to investment costs. These administrative costs are generally fixed regardless of the balance of the fund as they are based on professionals billing time whereas retail funds charges are generally based on a percentage of the balance.
While retail funds may offer access to geared investments, either through managed funds or through instalment warrant products, they cannot facilitate the purchase of a particular property and may limit access to listed securities.
Reduce the amount you need to earn to pay off $1,000 in debt. By borrowing through your SMSF instead of individually or through another structure, you could save up to $693 for each $1,000 you reduce your debt by. An individual at 46.5% must earn $1,869, pay $869 tax on that and then pay off $1,000 in debt, whereas a super fund only needs to earn $1,176.
For comparison, the income that needs to be generated to retire $1,000 in debt at different tax rates is:
At 46.5% $1,869
At 31.5% $1,460
At 30% $1,429
At 15% (SMSF) $1,176
It is important to understand that benefits may vary depending on your situation.
Super Professionals are qualified experienced accountants. We have a strong background in taxation working with Primary Producers, Small to Medium Enterprises, as well as high income individuals.
Super Professionals draw together a network of accountants, financial planners and legal advisers to ensure that you maximise the return on your investment in a SMSF structure.
We act as facilitators to ensure that what you do assist you to achieve your goals. We do not do ‘one size fits all’. You work with us so that we understand what you want to achieve, then we bring together the people and services to help you do it.