Before you set up an SMSF, it’s important to consider whether running your own super fund is right for you.
1. Do you have enough time, knowledge and skills to manage your own super and meet your legal and other obligations?
2. Do you need the additional benefits an SMSF can provide?
3. Do you have enough super to make an SMSF cost-effective?
If you answered NO to any of these questions, you may want to consider other super options where you can outsource the responsibility for running the fund to superannuation experts.
You should also seek professional advice or guidance when deciding on the best superannuation solution for you. It is recommended that you also seek advice from a registered tax agent to determine the tax implications for you. NAB is not a registered tax agent and the tax information contained on this website should not be relied upon to determine your personal tax obligations.
Where can you get advice?
If you’re not sure whether an SMSF is right for you, or would like some help setting up or running your fund, there are professionals who can provide advice or guidance. These include:
• lawyers, who can provide you with an appropriate trust deed and governing rules for your fund
• financial or investment advisers, who can help you prepare, implement and review your fund’s investment strategy
• accountants and/or registered tax agents, who can look after your fund’s record keeping and reporting requirements, and provide taxation advice
• a fund administrator, who can help you look after the day-to-day running of your fund, and
• an auditor, who must be appointed to sign off on your fund each year to the Regulator.
The benefits of running your own super fund (SMSF)
SMSFs can offer a number of features and benefits generally not available with other super options.
• More investment control: You can establish your own investment strategy and directly control where and how your super is invested.
• More investment choice: You can select from a wider range of investments including all listed shares, some unlisted shares, residential and business property, and collectables such as artwork, stamps and coins.
• One fund for the family: You can set up a fund for yourself and up to three other people and consolidate your super balances. This could enable you to invest in assets of higher value than if you set up a fund with fewer members, achieve greater estate planning flexibility and reduce fund costs.
• Borrow to make larger investments: Your SMSF could make a larger investment in assets such as shares and property by using cash in your fund and borrowing the rest.
• Tax savings: Like other super funds, earnings from investments held in an SMSF are generally taxed at a rate of 15% while you build up your retirement savings, and 0% when the assets are used to pay a pension. Then, when you access your super benefits, concessional tax rates are payable on lump sum withdrawals and pension payments if you are under age 60, and no tax is payable on benefits received at age 60 or over (provided your super has come from a taxed source).
• With SMSFs you can also take greater control over the timing of tax events, such as starting a pension without triggering capital gains tax when your superannuation assets move into pension phase. You also have the option of transferring certain assets that you own into your SMSF.
• Greater estate planning certainty and flexibility: You can complete a binding death benefit nomination without having to meet some of the constraints that apply to other super arrangements.
Who can be an SMSF member?
Essentially anyone can be a member of an SMSF provided they:
1. are not an employee of another member unless they are related to them, and
2. are not a ‘disqualified person’.
A disqualified person is someone who:
• is disqualified by the Australian Taxation Office or the Australian Prudential Regulation Authority from acting as trustee of a superannuation fund
• is an undischarged bankrupt, or
• has been convicted of an offence for dishonest conduct arising out of a law of the Commonwealth, State, Territory or foreign government, such as fraud.
An SMSF can have between one and four members, although most funds have two members. Common examples are a couple (eg a husband and wife or same sex couple) and two people who are in business together.
The trustee options and eligibility rules
Each member needs to be either an ‘individual trustee’ of the fund or a director of a trustee company, which is known as a ‘corporate trustee’.
Who can be an individual trustee?
You can be an individual trustee if you are a member of the fund and so long as you are not a ‘disqualified person’ and are not:
• a minor (ie a child under 18 years of age) where you will need a parent (who may also be a member of the fund), a guardian or a Legal Personal Representative to act as trustee on your behalf, or
• a person with a mental or physical incapacity which prevents you from acting as trustee, where you will need another person who holds an ‘enduring power of attorney’ to act as trustee for you.
Which companies can be a corporate trustee?
Most companies can be used as a corporate trustee provided:
• a director, executive, secretary or other ‘responsible officer’ is not a ‘disqualified person’
• all directors are members,
• a receiver, official manager or provisional liquidator has not been appointed, or
• action has not commenced to wind-up the company.
You could use an existing company, however, it’s worth thinking about having a separate corporate trustee for your SMSF. This helps keep your SMSF’s assets separate from your other assets, as required by law.
Also, directors of the corporate trustee can generally only be members of an SMSF, while another company may have directors who will not be SMSF members.
What are the benefits of having a corporate trustee?
A corporate trustee can offer a number of benefits including:
• Less cost and effort when membership changes. With individual trustees, the title to the fund’s assets needs to be transferred into the new trustees’ names when a member joins or leaves the fund. Conversely, with a corporate trustee, the company holds legal title to all the fund’s assets, so no transfer of names is required when members are added or removed.
• Greater protection from litigation. If individual trustees are involved in a legal dispute, their personal assets may be exposed. With a corporate trustee, any action will generally be limited to the assets of the company, not the company directors.
• Greater control for single members. If a person who is the single member of an SMSF wants to be an individual trustee, another person must be appointed as a second individual trustee. However, a sole member can be the only director of a corporate trustee and have total control of the fund.
• More longevity. As a company an SMSF can continue indefinitely, a corporate trustee can provide greater certainty over the control of the fund if a member dies or becomes incapacitated.
How much can it cost to establish a corporate trustee?
The cost of establishing and running a corporate trustee may not be significant if a suitable company is already available. However, if a new company is established, the additional costs can include:
• an upfront establishment and registration fee, which can range from around $800 to $2,000
• an annual review fee, which is approximately $41, and
• annual accounting costs, which should be minimal unless the company undertakes other activities.
Responsibilities of a Trustee!
As a trustee of an SMSF you will be responsible for meeting a range of legal and other obligations and penalties may apply if you don’t perform your duties. Some of the key responsibilities include:
holding assets for the sole purpose of providing benefits for your members upon their retirement or your members’ beneficiaries if they die developing, implementing and reviewing an investment strategy for your fund keeping your super assets separate from your personal or business assets and assets of employers who contribute to your fund preparing and keeping proper records, including financial statements, tax returns, audits, actuarial certificates (where applicable) and minutes of trustee meetings and decisions not lending money or providing financial assistance to members using fund assets not borrowing money except in limited circumstances, such as to purchase investments using a ‘limited recourse borrowing arrangement’ not allowing In-house assets to exceed 5% of the total fund assets, and not releasing money to a member unless they have met one of the relevant ‘conditions of release’.