Self-Managed Superannuation: Is it right for you?

New rules to superannuation in 2007 which now allow self-managed superannuation funds (“SMSFs”) to borrow money to acquire an asset provided certain criteria are satisfied have meant that SMSFs are a very attractive vehicle to plan for your retirement.

The Australian Taxation Office (“ATO”) regulates SMSFs and have issued a introductory paper providing factors that people need to consider if you decide to manage your own super. The six factors that people should consider are outlined in this article.

1.  Consider your options and seek professional advice

You should consider all your options before making a decision to manage your own super in a SMSF.

It is essential that you have an accountant, financial planner or legal advisor who can help you understand the requirements and costs involved with setting up a fund and your investment options and risks.

If you do set up a SMSF, you will either be a trustee of the fund or a director of the corporate trustee for the fund and ultimately you will be legally responsible for all decisions you make even if you have sought advice.

2.   Do you have enough assets, time and skills?

Operating a SMSF mean you’re the one responsible for:

• Making the best investment decisions; and
• Meeting all your obligations as a trustee of your fund.

Generally if you have super savings of at least $200,000, then it is economically viable to set up and run your own fund. The costs involved with running the fund include:

• Audit fees;
• Accountant, financial planner and on-going professional advisory fees;
• Life insurance costs
• SMSF annual supervisory levy (which is currently $150).

You will need to consider whether you have adequate time to be managing your own super.

3.  Understand the risks and laws

As an incentive for members to save for their retirement, super funds including SMSFs receive tax concessions. However, you need to follow the tax and super laws to receive these concessions. Penalties for non-compliance of these laws could mean that your SMSF is wound up or that you are taxed at the highest marginal rate.

It is also essential that you think carefully about what investment options you chose and also consider your investment profile i.e. your age, the level of risk you’re comfortable with, and the objectives of your fund.

4.  Ensuring that your trust deed and investment strategy are in line with member’s expectations

Trust Deed:

• Is the legal documents that sets out the rules for establishing and operating your fund;
• The deed needs to be tailored for your fund; and
• Correctly drafted to meet legal requirements, fund’s objectives and member’s needs.

Investment Strategies:

• An investment strategy will set out the fund’s investment objectives and your plans for meeting those objectives; and
• It needs to take into account the risk profile of members.

As member’s needs and expectations change with respect to their super fund, accordingly the trust deed and investment strategy needs to be regularly reviewed to reflect these changes.

5.  Record keeping and reporting obligations

As trustee of your own SMSF it is your responsibility to ensure that you keep proper and accurate tax and super records. You will also need to make certain records available to your fund’s approved auditor when they go to conduct their annual audit. The ATO could also request that you produce accurate records for them during an ATO audit.

You will need to report certain changes of in fund to the ATO when they happen. The types of changes that must be notified in writing to the ATO include:

• Trustees;
• Directors of corporate trustees;
• Members; and
• Fund address and contact details.

6.   Make sure you understand the auditing obligations

There is a legal obligation to have your SMSF independently audited annually. The auditor will:

• Provide you with a final report for your SMSF; and
• Is bound by law to notify the ATO of any contraventions of super rules.

Back to Business, Banking & Leasing Law