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SMSF stands for ‘Self Managed Superannuation Fund’.
SMSF is a self-managed super fund structure that offers numerous benefits to its members upon retirement. Think of an SMSF as a do-it-yourself superannuation fund. It can be established between one to four members and the trustee will have complete control while tailoring the funds to satisfy their individual needs.
SMSFs offer amazing retirements benefits to their trustees. Some benefits are discussed below:
- Variety of investment
- SMSFs offer a range of investment opportunities as trustees can have direct investments in cash accounts, fixed-term deposits, property as well as the international share market.
- Tax strategies
- SMSFs are also helpful in getting concessional tax rates. A 15% tax applies on investment in the accumulation phase and no tax is imposed in the pension phase up to the transfer balance cap which is $1.6 Million per member. They are also exempt from the capital gains tax. Self managed super funds can help you grow your super savings and lower tax expenses.
- Concessional Contributions
- You can make concessional contributions up to the capped limit which is $25,000 for the 2019-2020 financial year. These contributions are included in the SMSF’s assessable income and are taxed at the concessional rate of 15%. Note: This value may vary for previous or future financial years. Please contact our SMSF advisers for further clarification.
- Flexibility in SMSF Investment Strategy
- SMSFs allow various members at a time to run and manage a blend of accumulation and pension accounts. You can adjust your investment strategy to manage your risk profile according to your requirements.
- SMSFs offers significant transparency allowing trustees to match their personal goals with their investment decisions. Whether you want to purchase real estate, shares, and do investments in the funds, SMSFs offer a platform to understand where your money is being invested, with complete visibility over performance and tax treatment.
- Superannuation assets
- SMSFs also allow the trustee to combine their superannuation assets with up to four other members including partners, family members or others. This can create a larger fund balance, which increases the fund’s assets and investment opportunities under a single fees structure.
Setting up a SMSF can allow you to be in-charge of the SMSF investment strategy rather than someone else making decisions for your retirement savings. But setting up an SMSF ceases to be an attractive prospect for most people when they realise the sheer amount of effort involved including:
- Choosing whether to have individual trustees or a corporate trustee;
- Creating the trust and a trust deed;
- Checking if your fund is an Australian superfund;
- Registering the SMSF and getting an ABN;
- Setting up an SMSF Bank account;
- Getting the electronic service address; and
- Preparing an exit strategy.
You need a trusted SMSF adviser to figure out the best setup strategy and Auditax Accountants have a lot of experience in setting up an SMSF. From paperwork to handling SISA and SISR compliance matters, we will ensure your SMSF gets the best possible start. Our ongoing compliance services will also lead to a smoother transition from setup to regular operation.
All SMSF members must be its trustees – If the fund chooses to get a corporate trustee, each member of the SMSF must be a director of the trustee company. That company must be registered with the Australian Securities and Investments Commission (ASIC) and all trustee company directors must be members of the corresponding SMSF.
SMSFs can have up to four members. To be eligible to become a member of an SMSF, the member must consent to becoming a trustee and is eligible to accept their responsibilities by signing a trustee declaration. In order to be eligible, SMSF members cannot:
⦁ Be currently bankrupt or insolvent under administration;
⦁ Be previously disqualified as an SMSF trustee by a court, the ATO or APRA;
⦁ Have ever been convicted of a dishonest offence in any state, territory or a foreign country.
People under the age of 18 can also become members when they are represented by a trustee who agrees to act on their behalf. That is generally a parent or guardian.
Members manage SMSF funds by making timely investment decisions. It’s legally required by the SMSFs to must have a documented SMSF investment strategy. The investment strategy is used to guide trustee decision-making and there are various factors to consider while developing an SMSF investment strategy:
- You must keep in mind the individual characteristics of fund members, such as their age, current financial situation, and risk profile;
- Get to know the benefits of diversifying the fund’s investments to reduce risk through investing across a combination of cash accounts, fixed-term deposits, property and the international share market ;
- Liquidity of the assets that can be converted into cash to pay future member benefits when required; and
- Trustee must consider whether insurance cover is required for the members of the SMSF.
You or your relatives cannot live in a property owned by your SMSF. Additionally, SMSFs can not borrow money except under limited recourse borrowing arrangements (LRBA). Some people may choose to set up a self-managed super fund (SMSF) to purchase a residential property after retirement, but an SMSF may not be the most effective way to own a home. The government has imposed strict regulations surrounding properties owned by SMSFs, even for the trustees who are close to their retirement. Any breach in the rules could lead to penalties being imposed upon the trustees and rendering the SMSF non-compliant.
The cost of managing SMSF varies with the type of smsf structure, investments and complexity of transactions in the fund. You can generally expect to pay for Setting up the SMSF, getting SMSF Advice and SMSF Compliance costs. The trustee needs to lodge an SMSF annual return, organise an audit, and pay ATO fees annually. Our compliance services include the Annual SMSF Tax Return, SMSF Audit and ATO fees.
Setting up an SMSF does not end with the creation of a trust and appointing trustees.
There are a lot of moving parts within an SMSF and strict regulations that apply. As a member of an SMSF, you’re in charge of every aspect of the fund. That means filing taxes, searching for investment opportunities, and every other responsibility assumed by a professional fund manager. Here’s a glimpse of what you’ll be responsible for after setting up an SMSF:
- Filing tax returns;
- Managing fund investments;
- Cashing benefits to members;
- Filing annual returns;
- Preparing annual financial statement;
- Preparing trustee minutes;
- Appointing an SMSF auditor; and
- Ensuring compliance to the constantly changing superannuation and taxation legislation.
Those are just a few things you’ll be doing as an SMSF trustee, enough to make anyone come out of retirement. Most of these roles are assigned to a single professional in a professionally managed fund. Having four people attend to these obligations in an SMSF may be asking a lot of them.
With our help, you can have the best of both worlds. You can enjoy the control that comes with being a member of an SMSF while we take care of the responsibilities. Our SMSF Accountants do all the heavy lifting, while you enjoy the benefits of your SMSF investment strategy. You will never have headaches surrounding compliance, auditing, tax filing, and other administrative aspects of an SMSF with our help. You get to have full knowledge that you’re in complete control of your future and that of your nominees. SMSF Accounting has never been easier with our professional accountants there to help at every step of the way.