What is a Self-Managed Superannuation Fund?

A Self-Managed Superannuation Fund (SMSF) is a type of superannuation fund established for the sole purpose of providing retirement benefits to its members or to their dependents, if a member dies before retirement. The difference between an SMSF and other types of funds is that there are less than 7 members of an SMSF, and the members must also be the trustees of the SMSF. Trustees are responsible in making the investment decisions for the fund and for ensuring the fund is compliant with the super laws.

Cost Advantages 

An SMSF's operating expense ratio declines as the size of a fund increases. From analysing the SMSFs that we provide services to, we have found that management expense ratios are on average below 1% of the fund balance.


A common question raised is how much the members' super balances should be before considering establishing an SMSF. ATO statistics from the 2021 year show that the median assets of SMSFs established that year were $472,824.

Investor Choice and Control

An SMSF gives members complete control over their own investment decisions. Trustees must have an investment strategy in place that sets out the fund's investment objectives and specifies the types of investments the fund can make. SMSFs have the ability to own assets not generally available within other super funds. For example, they can hold property directly or hold instalment warrants, which are a form of derivative with gearing built into them for shares and property. They can also acquire business real property from members and other related parties (at market value). The property can then be leased back to the member's business (at commercial market rates). 

Estate Planning

Superannuation is not an estate asset, but superannuation can be used as an estate planning vehicle to direct benefits to specific beneficiaries. For example, superannuation can be used to provide an income stream to a surviving spouse or a lump sum of money to children from a previous marriage. Adult children can be introduced as members of an SMSF at inception or at a later date. This can be a way of providing liquidity to the fund to pay benefits to older members while preserving assets held by the fund. Carefully structured Estate Planning can result in very effective outcomes. 

Creditor Protection 

Superannuation is protected from creditors, and given an SMSF can buy a member's business property, this can be a very effective vehicle for asset protection. However, if they are transferred to the SMSF with the sole intention of avoiding creditors, then this protection does not apply. 

Choosing Individual Trustees or a Corporate Trustee

The trustees of an SMSF are responsible for ensuring that the fund complies with the governing rules of the trust deed and the super law. All members of the SMSF must be either individual trustees or directors of the corporate trustee. Where an SMSF has only one member, a corporate trustee must be established.

  Individual Trustees    Corporate Trustee
Each member of the fund must be a trustee and each trustee must be a member of the fund.   Each member of the fund must be a director of the company and each director of the company must be a member of the fund.
There must be a minimum of two trustees. One trustee must be a member of the fund with the other trustee holding a nil member balance.   May have a sole director company that is also the sole member of the fund.
Ongoing administrative requirements and establishment costs are less because there are no ASIC fees.   ASIC charge a fee to register the company and a nominal annual review fee. This annual fee is reduced when the company is solely established to be the corporate trustee of a SMSF.
All assets of the fund will be held in the name of the trustees 'as trustees for' the fund. If an individual trustee is removed or added you must change the titles of the SMSFs assets. This can be costly and time-consuming.
  When a member leaves or joins the fund they cease to be or they become a director of the corporate trustee. As the company name does not change, the title to the SMSFs assets is unchanged.
A fund must always have at least two individual trustees. If one was to pass away a new individual trustee must be appointed otherwise the fund is in breach of the super rules.   A company continues in the event of a member's death. With a corporate trustee, control of an SMSF and its assets are more certain in the event of the death or incapacity of a member.
Fund assets must be kept separate from any assets members hold personally. This may be risky where assets are held in individual trustees names.
  Assets held in a company name are easily identified as being separate from members' personal assets.
If super laws are breached, administrative penalties are levied on each trustee. The more trustees, the greater the potential penalty.   If super laws are breached, administrative penalties are levied on the corporate trustee only, not individual directors.

Trustee Obligations

As trustees, you are responsible for running the fund and making decisions that affect the retirement interests of each member, including yourself. As a trustee, you must:

  • Act honestly in all matters concerning the fund.
  • Act in the best interests of all fund members when you make decisions.
  • Manage the fund separately from your own affairs.
  • Know, understand and meet your responsibilities and obligations.
  • Ensure that the SMSF complies with the laws that apply to it.


You can appoint other people to assist or provide services to your fund, such as an accountant, tax agent, administrator, or financial planner. However, the ultimate responsibility and accountability for the fund's actions lie with the trustees.

Setting up a Self-Managed Superannuation Fund

Determine a name for the SMSF (and Corporate Trustee)

An SMSF is a special type of trust and therefore requires a Trust Deed to be established to create it. Brentnalls SA will arrange for a lawyer to draft the fund’s trust deed. If a corporate trustee is required, this will be established with ASIC at the same time as the SMSF and appointed as trustee of the SMSF. If you are a corporate trustee, you will need to provide your Director ID.

Register the fund

Brentnalls will apply for an ABN and TFN and request that the SMSF be a complying fund with the ATO. We can also register the fund for GST if required.

Setup a bank account

You will need to open a bank account in the name of the trustees ‘as trustees for’ the fund to manage the fund’s operations and accept cash contributions, rollovers of super, and income from investments. This account is used to pay the fund’s expenses and liabilities. You do not have to open a separate bank account for each member. Each member will have their own member account within the fund showing their contributions, share of fund investment earnings, and payments of any super benefits.

Employer contributions (if applicable)

In order for your fund to receive contributions from employers, it needs to be able to receive the contributions and associated SuperStream data electronically. Brentnalls SA can provide this service to your fund. An employer will need the following information about your SMSF in order to pay your contributions into it:

  • SMSF ABN
  • SMSF Bank account details (BSB and account number)
  • Electronic service address

Rollover existing superannuation 

As an SMSF trustee, you can accept contributions and rollovers for your members from various sources, but there are some restrictions, mostly depending on the member’s age and the contribution caps. Before requesting to rollover your superannuation balance from another super fund provider, it is important to review any insurance cover that is attached to your current super policy. This can be reviewed by Brentnalls SA on your behalf. It is also important to check for any “untaxed element” in the fund, as it will be taxed at 15% when rolled to the SMSF.

Self Managed Superannuation Funds (SMSFs Pitfalls)

Before establishing your own Self Managed Superannuation Fund (SMSF) you need to be aware of the pitfalls SMSF members encounter. If you are at all uncomfortable about complying with any of these issues then perhaps a public offer fund is more appropriate for you.


Trustee Responsibility

Trustees are expected to have a knowledge of tax and superannuation laws and must make sure their fund complies with those laws. If an SMSF is deemed to be non-compliant by the ATO, then the fund will be taxed at the highest marginal tax rate. Up to half the fund's assets may be lost to tax. Compliance risk is borne by the SMSF trustees, who can be personally fined if their fund breaches the law.


All trustees are bound by the trust deed and are equally responsible if its rules are not followed.


Having an insufficient initial balance

Industry consensus says that $200, 000 is the lowest practical amount that an SMSF's combined value should be to offset compliance costs. Unless there are plans to rapidly increase the value of the SMSF, it may be more appropriate to use a publically offered fund for balances less than this amount. It is important to factor in investment and advisory costs when calculating the value of the fund.


Withdrawing SMSF funds for your business or personal needs

SMSF funds should not be regarded as money that can be withdrawn to cover business or personal costs. Regulation prohibits fund members from being able to withdraw funds or provide financial assistance. There are also restrictions on lending to members, and to entities owned by members or to relatives.


Members working overseas

For an SMSF to be compliant and receive concessional tax treatment, it must be an Australian resident fund. If members work overseas, the SMSF may be at risk of losing its complying status. The law requires that trustees and most contributing members work and live in Australia. Central management and control of the fund must also be in Australia.


Failing to keep proper records

An SMSF requires detailed paperwork, annual financial statements, source documentation such as contract notes and minutes documenting of investment decisions. If the trustees of the fund are poor record keepers, it is worth considering outsourcing this to an accountant or advisor which will add to the cost of using an SMSF.


When setting up an SMSF, make sure that it is truly the best option and that all relevant rules are fully understood and complied with.

Costs of Establishing and Running a SMSF

Brentnalls SA are able to facilitate the setup of the SMSF and liaise with the lawyers to prepare the legal documents. We have found the average costs to set up a fund with a corporate trustee are as follows:

    Cost (inc GST) 
SMSF Trust Deed   $495
Corporate Trustee – new company setup   $355
ASIC registration fee – new company   $645
Registration & Establishment of SMSF (including bank account & rollovers)   $550-$1,100

The annual compliance costs (accounting, tax & audit) for an SMSF depend on the size of the fund, the types of investments made by the fund, and the number of transactions undertaken. Brentnalls SA uses specialist superannuation software to help reduce the annual compliance costs for a SMSF, making our fees very competitive.
 
At Brentnalls SA, we have a dedicated Super & Wealth division that focuses on providing services to clients with SMSFs. We can provide financial advice, SMSF compliance & administration services, as well as advice regarding superannuation strategies and retirement planning.
 
Our main focus is reviewing the performance of your fund and managing ways to maximise your after tax returns. We do this with one-on-one meetings with all clients, where possible, to help trustees understand the benefits of implementing certain strategies, such as commencing transition to retirement pensions, re-contribution strategies, contribution splitting strategies, and all matters pertaining to estate planning. We also provide quarterly newsletters with an invitation to in-house client events on superannuation and wealth creation topics.


If you have any queries in relation to superannuation, running a SMSF, or establishing one, please contact Brentnalls SA and ask to speak to one of our advisors.

Discuss Further?

If you would like to discuss this, please get in touch.

Disclaimer

The information provided in this information sheet does not constitute advice. The information is of a general nature only and does not take into account your individual financial situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.

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