Before transitioning to an SMSF, it’s crucial to understand the administrative and compliance requirements associated with it. The information below provides insights into managing your SMSF effectively.
What is an SMSF?
An SMSF is a trust that manages funds or assets for up to six individuals to secure future retirement benefits. All SMSF members must serve as trustees or directors of the fund’s corporate trustee, with a few exceptions.
Benefits of Establishing an SMSF:
The primary advantage of having your SMSF is the increased control over investment choices and flexibility. As the fund’s trustee, you decide investment strategies and asset types.
Your SMSF can also invest in assets not typically available in public super funds, offering customisation to meet members’ specific pre- and post-retirement needs.
Like other complying super funds, SMSFs enjoy concessional taxation, with a top tax rate of 15% on investment earnings. Compliance is key to retaining this tax concession.
Things to Consider:
- Governing Bodies: The Australian Taxation Office (ATO) oversees SMSF regulation.
- Compliance: As an SMSF trustee, you must define an acceptable rate of return and risk tolerance for your fund, regularly review the investment strategy, and consider insurance for members.
- Professional Assistance: Many SMSF investors enlist specialist administrators to handle compliance tasks while retaining investment control.
- Compliance Components: Key aspects of compliance include borrowing rules, in-house asset regulations, dealing with related parties, and conducting transactions at arm’s length.
- Sole Purpose Test: Your SMSF’s primary objective should be providing retirement benefits to members.
- Asset Separation: Ensure separation between the fund’s assets and any businesses involving trustees to avoid legal issues.
- Investments: SMSFs have limitations on investments, but they can invest in business real property. Restrictions also apply to personal use assets and collectibles.
- Fiduciary Responsibilities: Managing the SMSF’s bank account separately from personal accounts is essential.
- Cost Considerations: Establishing an SMSF is cost-effective for those with around $200,000 to $250,000 in funds, excluding initial setup costs.
Holzworth Partners can help determine if self-managed super is suitable for you.