The years during and after the global financial crisis were not particularly kind to most people’s superannuation funds. Many people felt that they might be able to do better with their retirement nest eggs by setting up their own self-managed super fund (also referred to as a “SMSF”). In this way they could gain back a level of control over their money and avoid some of the fees they were being charged. In the past few years SMSF’s have gained in popularity, with more and more people choosing to make their own investment decisions about their super and running the fund for their own benefit.
However, with more control comes greater responsibility, and the Australian Tax Office (ATO) as well as regulatory bodies warn people not to take the decision to set up a SMSF lightly. Firstly, the establishment of your own self-managed super fundcan be expensive and may take a while. Secondly, you will have to decide where and how you would like your superannuation money to be invested – there are very strict rules and procedures for such investments and it is the responsibility of the trustee or director of the SMSF to understand and comply with these. Lastly, you should be aware of the ongoing management duties and legal responsibilities you will assume as your SMSF’s trustee or director. These include making sure that:
- The SMSF has an investment deed and strategy. The fund’s strategy should be written, and include details of the investment objectives as well as relevant information such as the age of the fund’s members and their risk tolerances. The strategy needs to be reviewed regularly.
- The SMSF’s investments are separate from your own business or personal affairs. The fund must have clear and distinct ownership of any investment assets.
- All records and relevant information is correct, up-to-date and ready for tax returns and an annual audit.
- An independent auditor has been appointed to audit the SMSF’s records before the annual return is submitted.
- The SMSF’s annual return is lodged before the due date if it is registered for GST.
All members of a SMSF are also considered to be trustees, and it is important to note that there are rules governing who is eligible to become a trustee – for example, those under the age of 18 or anyone convicted of an offense involving dishonesty are considered to be disqualified.
As with other types of super funds, the money in a SMSF can only be paid out to a member once he or she reaches “preservation age” and meets certain criteria such as retirement from work. There are also occasions under which an early release of super benefits will be considered, such as a terminal illness.
Because of the onerous responsibilities and financial decisions that must be made, it has been suggested that SMSFs should only be considered by people with sound investment and financial knowledge or skills. In particular, the ATO suggests that anyone who is considering setting up a SMSF should contact a SMSF professional to help them consider their options as well as to take care of the day to day management and administration of the fund on your behalf.
Although can be a great vehicle for building wealth and prosperity they are not suitable for everyone. To discover how to maximise your existing SMSF or if one is right for you, contact us here.