CAN I SET UP A SELF MANAGED SUPER FUND?
Almost anyone over 18 years of age can set up a SMSF. However, individuals who are insolvent, have been convicted of a dishonest act or have been banned from doing so by the Australian Prudential Regulation Authority or the Australian Taxation Office cannot be a trustee or a director of a trustee company.
WHAT IS A MEMBER?
A member of a super fund is a person who makes contributions to the fund and then receives a benefit at retirement. The benefit can be in the form of a pension or a lump sum, or a combination of both.
HOW MANY MEMBERS CAN A SELF MANAGED SUPER FUND HAVE?
A SMSF cannot have more than 4 members. The members of the fund need not be related, although this is often the case. You can establish a SMSF with your spouse, partner, children, other family members, relatives, friends or a mixture. If a fund has more than one member the fund is required to keep track of the super balance of each member. A member statement must be issued to each member annually.
IS IT POSSIBLE TO HAVE ONLY ONE MEMBER?
Yes, a SMSF can have only one member.
WHAT IS A TRUSTEE?
A trustee is the person or company who is responsible for making sure the fund complies with all superannuation laws including the sole person test. Other trustee responsibilities include managing the fund’s investment strategy, appointing an auditor and lodging all documents with the Australian Taxation Office.
A trustee can be one or more individuals or a company where the directors of the company are members. Special rules apply to trustees where the fund has only one member.
HOW MANY TRUSTEES CAN A SELF MANAGED SUPER FUND HAVE?
A SMSF can have a maximum of 4 trustees where the fund has 4 members. The trustee must be a member of the fund except where the fund has only 1 member in which case special rules apply.
For a single member fund, if the trustees are individuals, there must be 2 trustees, one of whom is the member and the other a relative of the member. For a company acting as trustee, the member can be the sole director of the trustee company. Where the company has 2 directors, one of the directors must be the member and the other a relative of the member.
WHAT CONTRIBUTIONS CAN BE ACCEPTED BY MY SELF MANAGED SUPER FUND?
A SMSF can accept contributions for all sources including:
- Compulsory employer contributions (Super Guarantee Contributions)
- Salary sacrificed amounts from your employer
- Your after tax personal contributions
- Government co-contributions
- Rollovers or transfers from other super funds
CAN EMPLOYER CONTRIBUTIONS BE PAID INTO MY SELF MANAGED SUPER FUND?
Yes, since July 2005, you have the right to request your employer to contribute your compulsory employer super to your SMSF. The advantage is also that if you change jobs, because your SMSF is not linked to any particular employer, you can continue to contribute to your SMSF. And your new employer can contribute to your SMSF.
CAN I ROLL OVER MY EXISTING SUPER INTO A SELF MANAGED SUPER FUND?
Yes you can. Simply use the necessary form to make this request. You can also roll over super from a defined benefits fund into your SMSF, but first you should seek advice on the tax consequences of doing this.
WHAT WILL A SELF MANAGED SUPER FUND COST ME?
The fund will have a one off set up cost, the amount of which depends of whether the fund has individual trustee(s) or a company trustee. In addition there are annual accounting, tax and audit costs. It will generally be cost effective to establish a SMSF if you have super assets of $200,000 or more.
WHAT CAN MY SELF MANAGED SUPER FUND INVEST IN?
It is your responsibility as trustee to formulate the investment strategy of your SMSF and then to make investments in accordance with this strategy. SMSF’s can invest in most investment products including managed funds (shares and property) and direct investments such as shares – listed and unlisted, Australian and overseas; bonds; listed and unlisted property trusts and other financial products.
Only a SMSF is able to invest in real property (residential or commercial) and collectables.
Your SMSF is permitted to make investments along with you although strict rules must be followed in such instances.
WHAT INVESTMENTS IS MY SELF MANAGED SUPER FUND RESTRICTED FROM MAKING?
Your SMSF generally is not permitted to:
- Lend money to you or any of your relatives
- Purchase assets from you unless it is shares listed on the stock market or commercial property (but not residential property)
- Borrow unless strict rules are followed
- Invest in “in house assets”
WHAT TAX WILL MY SELF MANAGED SUPER FUND PAY?
All super funds, including SMSF’s are taxed on their earnings (which includes concessional contributions made to the fund) at 15%. Capital gains on assets held for less than 12 months are taxed at 15% but at 10% where they are held for more than 12 months.
When your fund is in pension phase – paying you a pension – all income and capital gains from assets held in your fund to pay the pension will not be taxed, and any franking credits received will be refunded in full.
CAN MY SELF MANAGED SUPER FUND PAY ME LUMP SUMS?
Yes, so long as you satisfy a condition of release for the payment to be made to you.
CAN MY SELF MANAGED SUPER FUND PAY BENEFITS AS A PENSION?
Yes, so long as this is permitted by the fund trust deed. You can easily transfer from accumulation phase to pension phase. Where this occurs, no capital gains tax is payable on assets purchased in accumulation phase but sold after you commence a pension.
WHAT IS AN INVESTMENT STRATEGY?
Superannuation law requires your fund to have an investment strategy although there is no prescribed format. The strategy will vary from fund to fund but will generally consider:
- The composition of the fund’s investments
- Future contributions to the fund
- Risk of investments
- Cash flow needs of the fund
- Age of members.
The investments strategy is required to be in writing and should be reviewed annually or when investment opportunities available to the fund are inconsistent with the fund’s investment strategy.
CAN MY SELF MANAGED SUPER FUND BORROW?
Yes, through Limited Recourse Borrowing Arrangements.
WHAT IS LIMITED RECOURSE BORROWING ARRANGEMENTS (LRBA)?
A LRBA is a means by which your fund can undertake a borrowing to purchase assets it would otherwise be prohibited from purchasing.
WHAT IS THE SOLE PURPOSE TEST?
It is the requirement that a super fund must be maintained solely for at least one of the core purposes such as:
- Retirement benefits for members
- Death benefits for members or the members’ estate
- Resignation and disability benefits for members.
Where the sole purpose test is contravened, the super fund may become non complying resulting in it losing its concessional tax status, and trustees may be subject to penalties.
WHICH GOVERNMENT DEPARTMENT REGULATES SELF MANAGED SUPER FUNDS?
This is the responsibility of the Australian Taxation Office.
WHAT IS THE SUPERVISORY LEVY?
This is a levy imposed annually on each SMSF by the Australian Taxation Office. The levy generally increases each year and in 2016 was $259.
CAN I WIND UP MY SELF MANAGED SUPER FUND?
Yes your SMSF can be wound up if it is no longer required by the members.