Also known as DIY (Do-It-Yourself) Superannuation Funds, a SMSF is a super fund that has been established generally by an individual, couple or family who want to control the investments that their superannuation monies go into.
It is an increasingly popular strategy, with the number of SMSF's growing 10 fold in recent years. It is generally recommended that you have a minimum of $100,000 in superannuation before going the SMSF route.
The basics of a SMSF are;
- It 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;
- The trustee can be a corporate entity;
- No trustee of the fund receives remuneration for his or her services as a trustee; and
- A SMSF is registered with, reports to and is regulated by the Australian Taxation Office.
The trustees of an SMSF are required to prepare and implement an investment strategy for the superannuation fund. The strategy must reflect the purpose and circumstances of the fund and take into account;
- How to maximise member returns while having regard to the risk;
- Appropriate diversification in a long term investment strategy; and
- The ability of the fund to pay benefits as members reach retirement, and other costs incurred by the superannuation fund.
Trustees must make sure all investment decisions are made in accordance with the documented investment strategy of the fund and should seek investment advice or appoint an investment manager in writing if in any doubt.
The trustees of the SMSF can make direct investments in shares or property, or may choose to place funds with an investment advisor or financial planner. If you are going to use an advisor or planner, consider the following things to look for;
- Efficient low cost administration;
- Full explanation of the requirements and responsibilities of trustees of SMSFs;
- On-time annual reports plus performance updates and newsletters;
- Availability - can you reach your adviser easily?
- Competitive fees for investing, management & insurance premiums;
- Clear detailed information on investment strategy, performance targets, investments and managing investment risk;
- Track record for showing returns to trustees and all fees and costs;
- No large outstanding legal claims or one-off costs.
Until recently there was a strict rule against a SMSF borrowing for investments. Whilst part of this rule still exists (a SMSF cannot hold ownership of a property that is used as security for debt), super funds can now borrow to buy shares and real estate. Whilst the rules are still tight, this a great option to building retirement wealth. Please click here for more information of borrowing to invest in your super fund.
Cliftons can set up your SMSF, advising the best option in your situation between individual or corporate trustee. We can also advise on the implementation of tax advantaged strategies for building funds into your SMSF. Please contact us if you need more information.
Please note that Cliftons is not an AFS Licence holder, and therefore cannot offer specific financial and investment advise. Information given here is general accounting and taxation advice only and does not constitute financial or investment advice in any way.