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what is a smsf

What is a SMSF?

benefitsWhat are the benefits?

is smsf for youIs a SMSF for you?

 

help

How can we help?

next step

The next step

 

Do-it-yourself superannuation, in one form or another, has been around for over 30 years. But it has only been over the last few years that these smaller funds or as they are commonly known, self-managed superannuation funds, have made an indelible mark on Australia’s retirement savings landscape.

The SMSF sector now claims a bigger slice of the super pie than it ever has, in terms of asset values and number of funds. The 528,701 SMSFs in the country have members that total 1,006,975 Australians. With more than $546.9 billion of superannuation assets, SMSFs represent roughly a third of Australia’s total. About a decade ago this representation was about 10%.

This stunning data is contained in the Tax Office’s statistical report on SMSF’s up to the end of March 2014. An earlier government statistical summary from about five years ago stated that the SMSF sector grew at an annualised rate of 20% over five years, compared to around 8% for other super funds. The growth rate has only increased in the meantime.

By asset value, SMSFs have now surpassed retail and industry super funds. The regulator of superannuation, the Australian Prudential Regulation Authority (APRA), says retail funds accounted for around a quarter of the total superannuation asset pool of $1.84 trillion at the end of March 2014, industry funds around 20%, but that SMSFs accounted for the biggest slice at just over 30%. Over the 12 month period, total superannuation assets had increased by 16.8%.

Almost every SMSF is regulated by the Tax Office, but other super funds are regulated by APRA (there are a handful of SMSFs with more than four members that are still under APRA’s wing).

 

What is a SMSF?

A superannuation fund is a self-managed superannuation fund (SMSF) if it meets the following conditions:

  • Has less than 5 members;
  • Each individual trustee of the fund is a fund member;
  • Each member of the fund is a trustee;
  • No member of the fund is an employee of another member of the fund, unless those members are related;
  • No trustee of the fund receives any remuneration for his or her services as a trustee.

A SMSF can also have a company as a trustee (known as a corporate trustee) if:

  • Each director of the company is a member of the fund;
  • Each member of the fund is a director of the company; and
  • The fund has less than 5 members, no member is an employee of another member (unless related) and the trustee does not receive remuneration for their services as a trustee.

The requirement that all members be trustees ensures that each member is fully involved and has the opportunity to participate in the decision-making processes of the fund. This promotes true self-management. The Australian Taxation Office (ATO) will regulate funds that meet the definition of SMSF. Special rules apply to single member funds, members who are minors and funds when a member has died.

 

What are the benefits?

Control

A SMSF provides maximum control over your superannuation assets and allows you the flexibility to decide how your funds are invested and how the fund is to operate.

Flexibility

A SMSF can be structured to meet the specific investment needs of the members. The fund can invest in a wide range of investments including shares, property (residential or commercial including farm land) term deposits and other investments as allowed by superannuation law. Funds can also borrow to acquire investments in certain situations.

Tax Concessions

Investing in a SMSF has tax advantages that make super a powerful wealth creation strategy. A concessional tax rate of 15% applies to the income of the fund including taxable contributions. Capital gains non investments held for more than 12 months are taxed at a rate of 10%. On retirement or when transitioning to retirement earnings on assets used to fund a member’s pension are tax free in the fund, whilst benefits paid from a SMSF to a member over 60 years of age are tax free in the member’s hands.

Portability

A SMSF allows you to consolidate various superannuation accounts you may have with public funds and to pool resources of other family members, who have similar financial objectives. You may transfer personally owned shares and other listed securities into your SMSF.

Cost Effectiveness

Most public offer superannuation funds charge an administration fee (generally over 1%), based on the value of the members superannuation account balance. On the other hand we charge a fee for service to administer SMSF’s on behalf of our clients. A SMSF can therefore be less expensive to operate when the funds total assets exceed say $200,000. The savings would become increasingly evident as the fund grows in value.

 

Is a SMSF for you ?

A SMSF is best suited to those people looking for maximum control over their superannuation assets, but who are also willing to accept certain regulatory responsibilities placed on trustees of SMSF’s, and to work at managing their own investments.

Duties Of Trustees

Trustees of SMSF’s are the ones who are ultimately responsible for the running of their fund. It is imperative that each trustee understands the duties, responsibilities and obligations of being a trustee. Rules exist to ensure the protection of the assets in the fund until they are needed at retirement. There are significant penalties imposed on trustees who fail to perform their duties.

Key Trustee responsibilities

A trustee of a SMSF must act in accordance with:

  • The clauses of the superannuation fund trust deed;
  • The provisions of the Superannuation Industry (Supervision) Act 1993 (SIS); and
  • Other general rules, for example those imposed under tax law and trust law.

The SIS covenants

The SIS Act contains covenants or rules that impose certain requirements on trustees and are deemed to be included in the trust deed of every regulated fund. These covenants set out the duties imposed on a trustee under trust law in general. They require trustees to:

  • Act honestly in all matters;
  • Exercise the same degree of care, skill and diligence as an ordinary prudent person;
  • Act in the best interest of the fund members;
  • Keep the assets of the fund separate from other assets (e.g. the trustee’s personal assets);
  • Retain control over the fund;
  • Develop and implement an investment strategy;
  • Allow members access to certain information.

A SMSF is clearly not for everyone and it is important that you understand your responsibilities as a Trustee at the start. Please arrange for an appointment with us to discuss the issues before you make any decisions regarding your financial future.

 

How can we help?

Yield Accounting specialises in all aspects of Self Managed Superannuation Funds from establishment and administration to advising clients on the various strategies available to help clients achieve their retirement goals.

Our SMSF services include the following:

  • Establishment of a Self Managed Superannuation Fund
  • Annual administration including preparation of the following:
    • Annual financial statements
    • Income tax return & regulatory return
    • Member contribution statements
    • Arrange independent audit
  • Strategies to convert from accumulation to pension phase for both transition to retirement pensions or normal account based pensions.
  • Strategies to transfer assets tax effectively into Superannuation
    Borrowing within a SMSF to acquire real estate or shares
    Estate planning strategies to minimise income tax for members and their beneficiaries and to pass assets on to the next generation.

Let Yield Accounting take the worry out of running your SMSF so that you can get on with enjoying your retirement.

 

The next step

Once you have established that a SMSF is right for you it is relatively simple to establish a new SMSF. Yield Accounting can organise for a trust deed to be written by their solicitors so that trustees can be appointed and registrations made with the ATO. A bank account can then be opened in the name of the fund. Your existing superannuation benefits along with up to 3 other family members cam then be rolled over into the SMSF.

Once the fund has been established Yield Accounting can provide ongoing support and guidance to ensure your fund remains compliant with the superannuation regulations and tax law.