You may have heard Self-Managed Super Funds are the next best thing since sliced bread. They seem to be at the height of discussion at the great Aussie BBQ -  but before you rush into it, is an SMSF really right for you?

Whilst there are many benefits associated with running your own self-managed super fund (SMSF), it is also important to understand and recognise that flexibility and control comes with greater responsibility. 

These include;

  • Responsibility for the ongoing compliance, administration and decision making for your fund;
  • The need to maintain your knowledge of investments allowed, and legislation surrounding SMSFs;
  • The potential for poor performance if your money is not managed wisely;
  • The potential for non-compliance in your fund.

As an SMSF Trustee, you are legally responsible for ensuring your super fund complies with SIS legislation and the super fund trust deed. These rules bind you to:

  • Act honestly in all matters concerning the fund;
  • Exercise the same degree of care, skill and diligence as an ordinary prudent person in managing the fund;
  • Act in the best interests of all fund beneficiaries;
  • Keep the money and assets of the fund separate from other money and assets (for example your personal assets);
  • Retain control over the fund;
  • Develop and implement an Investment Strategy;
  • Not enter into contracts or behave in a way that hinders trustees from performing or exercising their functions or powers; and
  • Allow members access to certain information.

People who willingly do the wrong thing in their SMSF face imprisonment and there are significant penalties associated with non-compliance.

As the SMSF structure experiences significant tax concessions, it is in turn, highly regulated by the Australian Taxation Office (ATO). The ATO declare a few hundred funds each year as non-complying as a result of trustees not complying with specific legislation.

Once a fund is made non-complying it no longer qualifies for concessional tax rates. The rate of tax payable for a non complying fund is 45%. Tax is then payable in the year of non-compliance not only on the income of the fund but also on the fund’s total assets (less non concessional contributions). Therefore the fund loses half of its value as a penalty for non compliance. The ATO as part of its Stronger Super reforms are taking a more proactive approach to fund auditing and accounting and will be conducting more fund reviews going forward so it is extremely important to understand completely the responsibilities of becoming an SMSF trustee.

The balance of your superannuation monies may also influence whether an SMSF is right for you.  If you have only a relatively small balance you can still enjoy the benefits of an SMSF by having up to 4 members in the fund. There is also a number of low service/low cost SMSF Administrators who can help you manage your SMSF at a reduced cost.

An SMSF is generally suitable for someone who has an active interest in the various investment markets, willing to learn and comply with the rules that govern SMSF and who enjoys being involved in the decision making process.

Here’s a quick checklist to see if you’ve got what it takes as an SMSF trustee.

  • Do you understand investments?
  • Are you confident in making decisions affecting your finances?
  • Do you have time to understand SMSF legislation?
  • Are you good with administration – paying your bills on time and keeping copies of important paperwork?
  • Do you have time to monitor your investments on a regular basis?
  • Do you enjoy reading and researching?
  • Are you happy to pay for investment and strategic advice if you need it?

Unless you answered ‘yes’ to most of the above, an SMSF may not be right for you.

Running your own super fund can be a very rewarding experience.. We’ve seen more conservative investors establish their SMSF and invest it all in cash and we’ve seen more speculative investors take risks on investments such as taxi licenses, antique cars and planes to name a few.

If you want to enjoy the benefits of an SMSF without all of the burden consider partnering with an experienced SMSF Administrator to guide you on your journey. If you’re unsure making investment decisions, seek financial planning and investment advice.

At the end of the day – SMSFs have been proven to generate better investment returns with enhanced member engagement so why not consider if it’s appropriate to you?

Olivia Long

Buying property inside your self-managed super fund.