What Is A Self-Managed Super Fund?

SMSFs can have no more than six members and each need to be trustees of the fund, or if run under a corporate trustee structure, members must be directors of the corporate trustee.

Like any other superannuation fund, SMSF member trustees or corporate trustees must run their fund for the sole purpose of providing retirement benefits, as outlined in the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Members’ superannuation funds are paid into their SMSF, and members are responsible for investing those funds appropriately. They must have an investment strategy that takes into account the risk profiles of all members, and which needs to be relevant to the specific circumstances of the fund and its six members.

According to the latest ATO data, SMSF members are heavily invested in equities. The top asset type held by SMSFs by value are listed shares at 29% of total SMSF assets and cash and term deposits at 15%.

There is a lot involved in setting up an SMSF—so much that the ATO has published a 30-page booklet here on how to do it. In a nutshell, you first need to decide on which structure you want to use: individual or corporate trustee.

Once this has been determined, you then need to appoint trustees, making sure all trustees meet the eligibility requirements, and those trustees need to sign the trustee declaration within 21 days of consenting to become a trustee. You also need to create a trust deed, which is one of the most important documents for your SMSF, as it sets out how your fund will be run and what it will be able to do.

To be an official superannuation fund, your fund needs to hold assets, and those assets need to be held separately from any other entity’s assets. Your fund therefore needs its own bank account, and it must be registered with the ATO within 60 days of being established to receive an ABN and TFN. Your fund also needs to register for an Electronic Servicing Address (ESA), which may be provided by your SMSF administrator, if you use one, or you can apply for one from a provider here.

As outlined earlier, your fund will also need an investment strategy which needs to set out the fund’s investment objectives and the types of investments it can make. There is no specific form for an investment strategy, but it needs to be in writing, and it needs to be reviewed regularly.

In short: yes. There are many rules, regulations and requirements for SMSFs and SMSF trustees.

You need to appoint and pay for an auditor every year to audit your fund, you need to keep records for at least five years and in some instances for as long as 10 years, you need to value your assets at least annually and complete your annual return annually.

You need to have trustee meetings, and minute those meetings, for any decision the fund makes, especially around investments, and you need to have a detailed investment strategy which you review regularly.

There are even more onerous rules and requirements once a member of an SMSF enters retirement.

The main advantage of an SMSF is summed up in one word: control. You know exactly where your superannuation funds are invested and usually how well those investments are doing.

If you love investing and learning about superannuation, then an SMSF might be right for you. It also helps if you like using your spare time to stay on top of what’s happening in the markets, learning about your SMSF requirements, and following what’s happening with regard to superannuation legislation.

In some instances, there may be some cost advantages to having an SMSF, but you need to have more than $200,000 in super for it to become cheaper to have your own fund than investing it in an industry or retail fund.

As an SMSF trustee, whatever happens with your fund, regardless of whether you seek professional advice or not, you will ultimately be responsible for anything that goes wrong and will have to face the penalties. Penalties for breaches include fines, disqualification of trustees and civil and criminal penalties.

There is also a huge time commitment involved in running an SMSF. You can always use an SMSF administrator, which can do some of the grunt work for you, but they of course charge for the service.

You also need a considerable superannuation balance to start with, with research by the SMSF Association finding that while SMSFs with balances of $200,000 offer equivalent value to a retail or industry fund, those with $100,000 or less are not competitive compared to APRA-regulated funds and SMSFs with $50,000 are more expensive than alternatives.

You can read more in our guide to the best default superannuation funds in Australia.

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