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Back to Basics: Everything You Need to Know About Self-Managed Super Funds

Our SMSF experts created this guide to self-managed super funds to give you a full understanding of what a self-managed super fund is.
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As the name suggests, a self-managed super fund (or SMSF) is a private superannuation fund that individuals manage themselves. It is established for the sole purpose of providing financial benefits to members in their retirement, and to protect and provide for their loved ones following their death. 

One of the biggest benefits of SMSFs is that they give their members complete control and flexibility over how they choose to invest their funds.

What Are the Advantages of Managing Your Own Super? 

There are many advantages of self-managed super funds, but your decision to adopt a self-managed super fund investment strategy will depend on your unique personal circumstances and goals. Here are some of the benefits:

Member’s Choice

Members of an SMSF have access to a broader range of investment options and categories in comparison to members of traditional super funds. Members also have complete freedom over when their super is invested, and how. 

More Members

SMSFs allow up to 6 members per fund. Members can consist of partners, spouses, family and friends. A larger number of members can result in a bigger balance, which in turn will give your SMSF more investment options and opportunities. 

Full Visibility

Members of an SMSF have full transparency on the current investments of their fund, as well as visibility on their day-to-day transactions. 

Passing Down Your Benefits 

SMSFs enable members to clearly outline who will receive their benefits when they pass away. Members are also provided with the flexibility to direct how the benefits are distributed amongst their nominated beneficiaries given their individual circumstances. 

How to Set Up a Self-Managed Super Fund

If you’ve decided that an SMSF is the right option for you and your beneficiaries, there are several steps you need to take in order to get your fund up and running: 

Establish a Trust

Before registering an SMSF with the ATO, you must first set up a trust. 

Complete a Trust Deed

The trust deed could contain provisions that address: 

  • Nominated trustees of the SMSF 
  • Trustee rights 
  • Rules 
  • When and how benefits will be paid 

Sign a Declaration Form 

Trustees or directors of the corporate trustee of an SMSF must sign a declaration form. The form states that the trustee understands all of their obligations, duties and responsibilities and must be completed within 21 days of the individual becoming a trustee. 

Lodge an Election to be Regulated With the ATO

Trustees must lodge an election to be regulated with the ATO within 60 days of establishing an SMSF. Failure to lodge an election notice will mean that the SMSF will be taxed at the highest marginal tax rate. 

Set Up a Cash Account 

Trustees will need to set up a cash account in order for the fund to accept contributions, earnings and rollovers. The account will also be used to pay expenses including: 

  • Accounting fees and supervisory levies
  • Member benefits 
  • Taxation liabilities

Register your SMSF with an Electronic Service Address

The ESA is required so that your SMSF can communicate with the SuperStream service which is required for Rollovers, contributions, and other payments. 

What Factors Should Be Considered When Developing a Self-Managed Super Fund Investment Strategy? 

When adding additional members to your SMSF, it’s important that you consider the financial situation of each individual member, as this could impact other members negatively. With this in mind, it’s also important to acknowledge the insurance needs of all involved members to ensure adequate levels of coverage for all members. To help reduce risks, members should consider diversifying the fund’s investment options. 

Who Can Be a Member of a Self-Managed Super Fund? 

All SMSF members are required to be trustees of the fund. Previously, an SMSF can have up to 6 members. Individuals under the age of 18 are eligible to become members of an SMSF, as long as a parent or legal guardian represents them and acts on their behalf. 

A new member must accept the responsibilities of becoming a trustee of an SMSF by signing a trustee declaration. A new member: 

  • Can’t be registered bankrupt 
  • Can’t have an employee/employer relationship with another member of the same fund, unless they are relatives
  • Must not have been previously disqualified as an SMSF trustee by the:
    > Australian Taxation Office (ATO) 
    > Australian Securities and Investment Commission (ASIC) 
    > Court 

What Are the Differences Between an SMSF and a Traditional Super Fund? 


How Are SMSFs Regulated? 

As explained above, SMSFs are regulated by the ATO and ASIC, whereas public super funds are regulated by the Australian Prudential Regulation Authority (APRA). 

ASIC manages the registration process for all independent SMSF auditors, while the ATO ensures that SMSFs are remaining compliant with their financial reporting and taxation obligations. 

Remaining Compliant with Superannuation and Tax Laws 

While members have the responsibility of making the investment decisions for their fund, they are also required to remain compliant with super and tax laws. 

SMSFs require members to abide by the following administrative obligations: 

  1. Maintain records 
  2. Provide financial statements when requested 
  3. Complete tax returns 
  4. Organise independent audits 

What Happens When SMSF Members Don’t Comply with Superannuation and Tax Laws? 

When a member of an SMSF doesn’t comply with super and tax laws, there are heavy penalties and ramifications involved. These include: 

  • Their fund losing concessional tax treatment 
  • Being disqualified from the fund – this means that members can no longer be part of their current SMSF, and they cannot start a new fund 
  • Fines 
  • Imprisonment (depending on the severity of the crimes) 

Specialised SMSF Advice at Your Fingertips 

Our BlueRock SMSF experts consist of our accountants, financial and investment advisors,who can work together to ensure all angles of your SMSF strategy and compliance are managed seamlessly and effectively. If you’re considering making the move over to a Self-Managed Super Fund, get in contact with our team today for a free consultation.  

Disclaimer: This article is for general information only and should not be read as advice. BlueRock highly recommends anyone thinking about setting up an SMSF should first obtain advice on the appropriateness of their strategy from a licensed financial advisor.

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