Thinking About a Self Managed Super Fund (SMSF)?

Written on the 8 March 2014

Managing your own super is a big responsibility. There are strict rules that govern how you can use a self-managed super fund (SMSF), how you can invest your money and when you can get at it.

If you want to manage your own super, there are many factors you need to consider. To work out whether an SMSF is right for you, it's important you take the following six steps:

1. Consider your options and seek professional advice.
2. Ensure you have sufficient assets, time and skills  to manage your own fund.
3. Follow the super and tax laws and understand the  risks.
4. Tailor your trust deed and investment strategy to  suit the members of your fund.
5. Be sure you can meet your record keeping and  reporting obligations.
6. Make sure you understand your annual auditing  obligations.

Consider Your Options

If you set up a SMSF, you’re in charge - you make your own investment decisions and you're responsible for complying with the law.

It's an important decision and the best approach for you depends on your personal situation, so it highly recommend you see a quali?ed and licensed professional to help you decide. We can help you understand what's involved and advise on the best option.

If you decide to set up an SMSF, make sure it's for the right reason: saving for your retirement. Don't set up an SMSF to try to get early access to your super, or to buy a holiday home or artworks to decorate your house. These things generally don't comply with super law, and schemes to get early access to super are usually illegal and fraudulent.

2. Sufficient Assets, Time & Skills

To establish a viable SMSF that's competitive with large funds you'll need around $200,000 in super savings. Your ongoing costs will be around $2,000 to run a median-sized fund each year, including  an annual supervisory levy.

If you set or join an SMSF, you'll also need to have   adequate life insurance in case you die or you're unable to work because of an illness or accident.

As a trustee of an SMSF, your primary responsibility is to ensure you have invested your fund's money appropriately, so ask yourself the following questions:

• Am I a confident and knowledgeable investor?
• Will an SMSF do as well as or better than other superfunds after I pay all the costs?

3. Following Super & Tax Laws

Super funds, including SMSFs, receive signi?cant tax concessions as an incentive for members to save for their retirement. However, you need to follow the tax and super laws to receive these concessions.

The assets and money in your fund are solely for your retirement beneit and are not to benefitou or anyone else outside your fund. This means that the personal use of funds for holiday homes, art to decorate your house, and your golf club membership almost certainly won't comply.

All financial decisions carry risk, so it's important to think carefully about how you choose your investment options to balance the level of risk against the level of financial return. You also need to be sure your super investments are legal.

By diversifying your investments you can help control the total risk of your investment portfolio.

4. Tailoring Your Trust Deed & Investment Strategy

A trust deed is a legal document that sets out the rules for establishing and operating your fund. Together with the super laws, they form the fund's governing rules. The trust deed needs to be tailored to your fund and correctly drafted to meet legal requirements, the fund's objectives and the  members' needs.

An investment strategy sets out the fund's investment objectives and your plan to achieve them. It provides you and the other trustees with a framework for making investment decisions to increase member benefits for their retirement. Your investment strategy needs to take into account the  personal circumstances of all the fund members.

5. Recording Keeping & Reporting Obligations

One of your responsibilities as a trustee of an SMSF is to keep proper and accurate tax and super records to manage your fund efficiently. It's a good idea to take minutes of all  investment decisions, including why a particular investment was chosen and whether all trustees agreed with the decision.

You need to make certain records available to your fund's approved auditor when they audit your fund each year. You may also need to provide accurate records to the Tax Offce if they ask to see them.

6. Annual Auditing Obligations

You have a legal obligation to have your SMSF independently audited annually. You need to appoint an approved auditor, who will:

• provide you with a report on your SMSFi
• report to the Tax Office if your fund has breached any super rules.

Approved auditors play an important role in maintaining the health of SMSFs.

For more information and to decide if a SMSF would suit  you and your particular circumstances, please call us on 02 4365 0377.