Self Managed Super Funds

Self managed super funds ("SMSF") are very popular and any proprietor of a business ought to consider it at some stage. Contributions to a super fund are compulsory on behalf of employees but not for the self employed who need to fend for themselves and make their own arrangements for their future in retirement.

It is important to do some research before deciding a self managed fund is best for you. You can choose as an alternative to simply make contributions to an independently managed fund. The Australian Taxation Office advises 20 percent of all super assets are in SMSFs, with well over 300,000 such funds and growing at a rapid pace of over 2,500 new funds a month. Clearly, there must be great advantages and benefits associated with SMSFs that are attracting a significant number of people to set up their own SMSFs. An overview of SMSF requirements may assist you in deciding whether to join the movement. The question then is do you have the time, knowledge and inclination to be personally supervising your investments?

A SMSF is established by a trust deed and must have four members or less, with each member being a trustee and no trustee receives payment for their services. As a trustee you are ultimately responsible for the running of your fund and must meet the regulatory and administrative obligations imposed on super funds. There are heavy penalties and fines for trustees who do not do so. That means complying with the Superannuation Industry (Supervision) Act 1993 and regulations, and the income tax, GST, PAYG and reasonable benefit limits requirements.

When running a fund a trustee must meet what is called the sole purpose test; that is the fund must be maintained only for the purpose of providing benefits in retirement to members. An activity which gives a benefit to a member prior to retirement is a breach of the Act unless it falls within other ancillary purposes as prescribed by legislation. For example a property purchased by a SMSF could not be occupied by a member of the SMSF. Nor could your SMSF buy a painting as an investment and hang it on your wall. There has been a significant increase in SMSFs audit activities by the ATO to ensure that trustees are operating their funds properly and this trend appears to continue as more SMSFs are set up.

Any investments must also conform to an investment strategy which is considered, recorded and implemented and regularly reviewed. Trustees will arrive at a strategy having considered goals, the risks involved in certain investments and the diversification of investments desirable for the SMSF. Strategy can and should change with review where appropriate to continue to meet members retirement requirements. An obvious reason would be that as a member approaches retirement the investment strategy would be inclined to become more conservative as the time left to recover from a bad investment diminishes.

Proper record keeping of fund decisions and activities is essential both for accounting and tax purposes as well as regulatory responsibilities.

It would be good practice to:

    • Keep minutes of investment considerations and decisions (and their compliance with superannuation laws);
    • Record all transactions;
    • Keep annual operating and financial statements.


    • Throw out documents even after returns have been lodged;
    • Fail to create necessary documentation.

Rules require that accounting records be kept for five years and administrative records for ten years.

Other fundamentals are:

    • Keep your super fund money and assets separate from your own;
    • Never use super funds for your own or business purposes;
    • Don’t lend super fund money or assets to members or their relatives;
    • Don’t have your super fund borrow money;
    • Don’t acquire assets from a related party (unless permitted by law);
    • Buy and sell assets on the market and at market value (all transactions must be on a commercial and arms length basis).

Trustees of a super fund are required to have an approved auditor to audit the operations of the fund each year and file an income tax return. The cost of administering a fund can therefore be considerable. This means, unless one can achieve economy of scale with sufficient capital in the fund, the SMSF option may be more expensive than other superannuation options.

There are many advantages of running you own SMSF, and provided that you are not daunted by documentation, like the idea of controlling your own destiny, have a genuine desire to create a fund for your future and are willing to research and determine appropriate investments then a SMSF may be for you.

A final note of caution:

Beware of schemes, particularly those offering ways and means of accessing funds before retirement- these are simply illegal and not workable and the ATO in the last few months has moved to close these schemes. With the complexities of running SMSFss, coupled with potential benefits that could be generated through SMSFs, it is essential that you seek advice from an appropriately licensed person with SMSFs expertise.

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For enquiries or more information regarding this article please contact Taylor and Scott at Taylor & Scott.

DISCLAIMER: This article was provided purely for your information only and you should check other information sources before taking any action based on this article. Neither the author nor Legal Access Services Pty Ltd makes any warranty as to the quality or currency of the information contained in the above article.