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What is a Self Managed Superannuation Fund (SMSF)?

Self-Managed Superannuation Fund (SMSF), also called Do It Yourself (DIY) Super Fund, is a superannuation fund that is regulated by the Australian Taxation Office (ATO) and all members of the fund (maximum of 4) are the trustees of the fund. The exceptions to this rule are, if a member is a minor, or a person is under legal disability. In such cases regulatory provisions state, that a member of a SMSF cannot be the trustee of the fund, and needs to be represented by some other trustee of the fund. The principle that all members of the fund are also the trustees, ensures that each trustee takes part in the decision making process of the fund. Trustees also ensure that the fund complies with the Superannuation Industry (Supervision) Act 1993 (SISA), the rules governing the operation of Self Managed Super Funds, as well as with other legislative and administrative requirements. Breach of any legislative requirements could result in the fund losing its complying status and trustees facing civil and criminal penalties.

If a SMSF complies with the SISA standards, the fund is complying superannuation fund and is taxed concessionally at a maximum rate of 15%. To stay complying, the fund needs to meet the sole purpose test, i.e. providing benefits to fund's members on or after retirement, paying benefits to members on the member's death, or benefits being passed on to a member's dependants or legal representatives.

The main difference between a SMSF and any other type of superannuation fund, such as government, industry, retail, or corporate fund, is the fact, that SMSF trustees also being the members of the fund cannot pay themselves any fee for performing trustees' duties. This works in the SMSF's advantage if trustees properly manage the fund's activity, therefore saving on the professional trustee's fees. This can also be a disadvantage, and can waste the fund's assets, if the trustees are not proficient and diligent in performing his/her duties.

So when deciding which type of fund you want to invest your retirement nest egg in, make sure that you understand all the available options, this being one of the most important investment decisions you will ever make.

SMSF is an option for investors, looking to have control over their superannuation assets, who are prepared to work at managing their investments and enjoy the benefits. Apart from managing the investments, some other responsibilities of the trustees are:

Paying members' benefits
Record keeping of membership details (and retention of all records for a minimum of 10 years),
Annual tax returns to the ATO (and retention of all tax information for a minimum of 10 years),
Change of membership in the fund, or trustee details changes, need to be reflected in the trust deed and the ATO notified,
Payment of the annual (currently $150) Superannuation Supervisory Levy.

There are two types of regulated Self Managed Super Funds. The most common type is usually called a non-corporate trustee SMSF, and the other one a corporate trustee SMSF. Non-corporate trustee SMSF can be a single or multiple member fund. Corporate trustee Self Managed Super Fund can also be single or multiple member fund.

Non-corporate trustee single member fund has only one member. The member is also the trustee of the fund, and the fund must have another individual as a trustee only. The second trustee cannot be a member of the fund. He or she can be a relative of the member, or alternatively, can be any other person providing the member is not an employee of that person.

Non-corporate trustee multiple member fund has more than one, and up to four members. Each trustee of the fund is also the member of the fund. Members of the fund cannot be employees of another member, unless they are related.

Corporate trustee single member fund has only one member and a company as a trustee. The member:

Must be the sole director of that company, or
Must be related to the other director of the trustee company and they have to be the only two directors of that company.

Corporate trustee multiple member fund has more than one, and up to four members, and a company as the trustee of the fund. Each director of the company is a member of the fund.

For more information about any superannuation issue phone the Australian Taxation Office (ATO) Superannuation Infoline on 13 10 20, or visit their web site: www.ato.gov.au/super

SuperEasy Pty Ltd is not licensed to provide advice on investments, or legalities of the types of investments that you can have. SuperEasy® strongly recommends that you seek professional advice before making any investment choice or decision!

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