SuperEasy® - Frequently Asked Questions about SMSF

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Frequently Asked Questions

Frequently Asked Questions (FAQ) and Glossary section of www.supereasy.com.au home page is a good place to start learning about self managed superannuation funds (SMSF). Please note that this FAQ section is a short version of our FAQ & Glossary page on our main site: www.supereasy.com.au.

SuperEasy® also recommends the Australian Taxation Office's website www.ato.gov.au/super, when it comes to Self Managed Superannuation and Superannuation.

What is a Self Managed Superannuation Fund (SMSF) / Do-It-Yourself (DIY) superannuation fund?
Do-It-Yourself superannuation fund is an informal name for a Self-Managed Superannuation Fund (SMSF). Self-Managed Super Fund is a superannuation fund that is regulated by the Australian Taxation Office (ATO) and all members of the fund are trustees of the fund. There are exceptions to this rule, such as, a member who is a minor, or, one who is under legal disability. In such cases, regulatory provisions state that a member of the SMSF cannot be the trustee of the fund.

What is the definition of a Member?
A member is a person that contributes to the fund or who receives benefits from the fund. In retirement, a member has the option of receiving either lump-sum payment or a pension, or a combination of both.

What is the definition of a Trustee?
A trustee is a person or a legal entity responsible for ensuring the fund is properly managed as set out under the Superannuation Industry Supervision Act 1993 (SIS) and all other relevant laws are observed. SMSF can also have a company as a trustee if each director of the company is a member of the fund.
Note: anyone over the age of 18 can be a trustee of a superannuation fund unless they are a "disqualified person" under SISA. An individual is a "disqualified person" if: at any time, the person was convicted of an offence involving dishonesty; or at any time, the person has been subject to a civil penalty order under SISA; or the person is an insolvent under administration (e.g. an undischarged bankrupt). Please notify your service provider before you establish your fund if any applicant for the membership of the fund is a "disqualified person"!

How many different types of SMSF can be established?
There are two types of regulated SMSFs. The most common type is usually called "More Than One Member Fund" or "Multiple Member Fund"; the other being a "Single Member Fund".

What is the definition of "More Than One Member Fund" or "Multiple Member Fund"?
This fund type has more than one, and up to four members. Each individual trustee of the fund is a fund member and each member of the fund is a trustee. Members of the fund cannot be employees of other members, unless they are related. Trustees of the fund cannot receive remuneration for their services as trustees.

What is the definition of "Single Member Fund"?
This fund type has only one member. The member must be the trustee of the fund and the fund must have another individual or a legal entity as a second trustee. The second trustee is not a member of the fund.
If the second trustee is an individual (rather than a company), that person can be a relative of the member, or alternatively, can be any other person providing the member is not an employee of that person.

If the second trustee is a company, the member must:

be the sole director of that company, or;
be related to the other director of the trustee company and that they be the only two directors of that company, or;
not be an employee of the other director of the trustee company and there are only two directors of that company.

My wife and I are planning to start our own SMSF. Are we able to have a joint superannuation fund together?
Yes, you can have a joint superannuation fund, i.e. Multiple Member Fund.

Before considering a Self Managed Superannuation Fund, please note some of restrictions relevant to SMSFs:

Lending to trustees, members and their relatives.
Acquiring assets from 'related parties' of the fund.
Borrowing.
Investing in in-house assets.
All the investments need to follow the two main rules: "sole purpose test" and "arms length".
It is the duty of the SMSF trustees to separate the SMSF assets from their own personal assets, or assets belonging to their business.
SMSF assets cannot be used for personal or business purpose, this representing the "sole purpose test" i.e. the funds in the SMSF are for retirement purposes only, and can generally not be accessed until retirement.

N.B. Money from the fund must not, under any circumstance, be used for personal or business purposes, as mentioned above. The fund's assets must not be viewed as a form of credit or emergency reserve, should the need arise! The main purpose of the superannuation investment is to generate and grow retirement benefits for the members.

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

Apart from restrictions and management of the fund investments, what are some other responsibilities of the SMSF trustees?

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.
Changes of membership in the fund, or trustee details changes, need to be reflected in the minutes of the fund and the ATO needs to be notified.
Payment of the annual Superannuation Supervisory Levy.

What are the advantages of a Self Managed Super Fund (SMSF)/ DIY Super Fund?

SMSFs gives members unique control of their investments within the legal framework.
Maximum tax payable on earnings is 15 percent. This tax can be offset by imputation credits up to 30 percent.
The tax is payable in the year the gain is realised.
SMSF allows control of the timing for asset disposal, meaning that realisation of gains can be deferred until such time that assets are supporting an allocated pension or complying pension, thus income being taxed at 0%.
SMSF is "portable" i.e. the trustees are in full control when deciding who will assist them in management of their funds, such as annual administration, obtaining a financial advice or choosing a stock broker or a bank.
SMSF is a prerequisite for an Allocated or a Complying pension.
SMSF allows for tax deductible insurance premiums.
SMSF presents opportunities for more meaningful integration of super into a member's total investment portfolio and retirement planning.
SMSF can invest up to 100% of the fund's total assets in "Business Real Property".

Generally there is no limit on the size of the contribution to the SMSF, or penalty on frequency of contributions. Contributions can be made at any time. Please note that there are minimum standards for accepting contributions under the current legislation (Superannuation Industry Supervision Act 1993). Also check the trust deed of your fund for the rules regarding contributions. For more information about contribution or any other 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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