Introduction

A Private Self Managed Superannuation Fund allows you the ultimate say on how your funds are invested or spent provided you keep within the legislative requirements. If an opportunity presents itself you can take it. It is essential that the fund is properly administered. We recommend that you only consider this type of fund where you have accumulations in excess or $150,000, which are likely to have significant growth in contributions, in order to recoup the costs of establishment and the administration costs. However the flexibility it offers can afford you opportunities that are not available in industry and financial market funds.

In Australia, your employer is required to pay into your superannuation fund an amount equal to at least 9% of your ordinary earnings, and most employers will allow you to top that figure up from your pretax earnings subject to certain limits. With the tax incentive to make contributions it makes sense that this is one of the first things you should consider in building your family’s financial security.

How it works

Establishing the Fund

The trustee will be the trustee of the Fund which, under superannuation law, is a Self Managed Superannuation Fund regulated by the Australian Taxation Office. A person is not eligible for appointment as a trustee of a superannuation fund or as a director of a corporate trustee unless that person has consented in writing to the appointment and is not a disqualified person. Therefore, each person should sign the Consent and Declaration forms before the Trust Deed is executed. The trustees should then pass resolutions along the lines of the enclosed drafts before executing the Deed by signing and dating as indicated. The draft resolutions we provide may need to be changed in order to accurately record the actual resolutions that are passed.

Important Features

A member, or a member's employer, may contribute to the Fund, provided the Trustee agrees.  Also, amounts may be transferred into the Fund from other complying superannuation funds.

Amounts contributed and transferred in, are allocated to individual member’s accounts, where investment earnings are added and expenses (tax, administration fees etc.) are deducted.  The accumulated balance represents the member's benefit which is payable when a member retires from the workforce, having reached the statutory preservation age, or commences a pension under the “Transition to Retirement” provisions.  Benefits are also payable before retirement in the event of death or total permanent disablement, and, subject to certain conditions, on total temporary incapacity.

ABN & TFN Application, and Election to be Regulated

We will apply for an Australian Business Number and a Tax File Number for the Fund (see copies of application enclosed).  For a superannuation fund to be eligible for the tax concessions the Trustees must make an irrevocable election for the fund to be regulated under the Superannuation Industry (Supervision) Act 1993.  This election is incorporated in the ABN & TFN Application.

Investment Strategy

The Trustees must formulate and document an investment strategy for the fund. This strategy would have regard to all of the circumstances of the fund from the perspective of risk, return, diversity and liquidity. We will assist you with the appropriate documentation and we will enclose a draft pro-forma as a starting point.

Please note that we are prevented by law from providing any advice about any individual investments or investment strategies - this will be a function of your appointed financial advisers and accountants.

Administration

We will provide certain advice and assistance to the Trustee, and will undertake all the administrative and secretarial duties relating to the operation of the Fund, including record keeping and the preparation of the books of account and annual taxation returns.

Working Account

It is necessary to establish and maintain an appropriate bank account for the fund.  We use a Cash Management Trust because of its administrative efficiency and functionality, interest calculated daily and paid quarterly on the entire account balance, and zero bank or account keeping fees.

This account will be used to receive any transfers and contributions initially, pending reinvestment or asset purchase.  Also, administration fees, taxes, charges, disbursements and other expenses will be drawn from it.

Under Anti Money Laundering legislation, we may be required to verify the identification of account holders.

Benefits

Control

A Self Managed Super Fund's (SMSF) main benefit is that it provides you with complete control over investments of the fund. You decide what to invest into and you decide when to buy and sell. Subject to legislation and your trust deed, you are able to invest in a wide range of assets through your fund.  You can invest in:

Flexibility
You will be able to consider a range of investments that suit you (subject to legislation) and be able to change those investments as you see fit.

Tax Savings
Self managed super funds can use credits from franked dividends to reduce the 15% tax rate. In a self managed fund you are in a better position to select your investments to reduce this tax rate, than you would be in a fund managed by others.

Lower Costs
Most retail super funds, industry funds and the like charge a percentage of your members balance as their management fees. For example, a $500,000 retail super fund with management fees of 2% would cost you $10,000 pa to run. At higher levels a SMSF can be potentially run at a much lower cost. It’s important to note that for very small funds costs can be a higher percentage of the overall fund size and a retail super fund may prove to be more cost effective. A discussion with one of our advisers will enable you to make an informed decision as to the suitability of a self managed super fund.

Tax effective death benefits
Family members who are dependents for tax purposes may be able to obtain death benefit payments tax free (within limits) upon death of a member of a SMSF, thereby possibly providing a tax effective way of distributing assets.

A Self Managed Super Fund can be passed down from generation to generation

SMSFs benefit not only those who establish the fund during their lifetime, but also their children and future generations as it is passed on from generation to generation.

Transferring existing Investments
SMSF’s are allowed to accept undeducted “in specie” contributions, allowing members to contribute shares, other listed securities and commercial real estate in lieu of cash. The benefit of this is twofold Firstly, you can transfer certain income producing assets from a high tax environment (e.g. 46.5%) to a low tax bracket (15%). Secondly, these assets are then potentially protected from creditors since it’s the SMSF trust that owns the assets.

FAQs

Who can have a SMSF?
Almost anyone can have a self-managed super fund.
You must already have money in superannuation or be able to make contributions to super.
However, some people cannot be members of a self managed fund because they cannot be a trustee or a director of a trustee company. For example, if you are insolvent, have been convicted of a dishonest act or been banned by the Australian Prudential Regulation Authority (APRA) or the Australian Taxation Office (ATO) you cannot be a trustee.

What are the conditions of a SMSF according to the Superannuation Industry (Supervision) (SIS) Act?
Speaking generally, for an SMSF to be complying:

  1. It must have 4 (or fewer) members;
  2. Each individual trustee must also be a member;
  3. Each director of a corporate trustee must also be a member;
  4. No member can be an employee of another member - unless the two members are related; and
  5. No trustee can receive payment from the fund for their services as trustee.

There are some limited exceptions to numbers 2 and 3 above.

Can fund members be non-Australian residents?
Yes fund members can be non Australian residents. However, there will likely be serious tax consequences if all members of the SMSF reside overseas for an extended time.

Can a member be under a "legal disability" and still be a member?
Yes a member can be under a "legal disability" (other than on account of them being younger than 18) as long as the legal personal representative of the disabled member is a fund trustee.
If the trustee is a company, then the legal personal representative must be a director of that company.

Can a member be less than 18 years old?
Yes, a person who is under 18 can be a member of an SMSF, which has individual trustees. If the member does not have a legal personal representative, then the member's parent or guardian must be a trustee of the fund on behalf of the member.

Can I have a corporate trustee and a member who is not 18 years of age?
The law does not allow an under 18 member for a SMSF with a corporate trustee. This is because the Superannuation Industry (Supervision) Act 1993 (SIS Act) requires:

  1. Each director of the corporate trustee to also be a member of the SMSF; and
  2. The Corporations Act 2001 requires a company director to be at least 18.

However, according to the SIS Act, if a member of a fund is under 18 and does not have a legal personal representative, then the minor may be a member provided that the parent or guardian of the minor is a trustee of the fund in place of the minor.

What are the conditions of single member SMSF funds according to the SIS?
Speaking generally, where a SMSF has only one member, then the SIS Act requires that:

  1. If the trustee is a company, then the member must be:
    1. the sole director; or
    2. one of only 2 directors who are relatives; or
    3. one of only 2 directors and the other director must not employ the member.

If the trustee is an individual:

    1. the member is one of only 2 trustees who are relatives; or
    2. the member is one of only 2 trustees, and the other trustee must not employ the member.

Remember, the law says that trustees of an SMSF cannot receive payment from the SMSF for duties, or services performed in relation to the SMSF.

If the trustee is a company, then is it automatically the Principal Employer or Employer Sponsor?
No, it depends on what the relevant trust deed says.

Is there a minimum balance required in a SMSF?
There is no statutory minimum amount. However, the costs associated with a SMSF usually mean that unless the super fund has assets of at least $200,000, or can make substantial contributions to achieve that in a short period, then a SMSF may not be your most cost-effective option.

What happens if the nominee of a Death Benefit Nomination dies?
If someone nominated to receive a death benefit dies before the nominator, then the nomination is cancelled and has no effect.

What happens if the nominee of a Death Benefit Nomination dies at the same time (say, in a car accident), as the nominator?
The law says that the oldest person is taken to have died first. If more than two persons die simultaneously then they are taken to have died in the order from oldest to youngest. So, if the nomination:

  1. Is binding, then the older person's nomination will vest in the younger person. The younger person's binding nomination will not vest because the nominee is deceased: any payment would then have to be made in accordance with the relevant deed; and
  2. Is non-binding, then the trustees will use their discretion and distribute the relevant members' benefits as they see fit and in accordance with the relevant trust deed.

What happens if all the trustees (directors of the trustee) die at the same time (say, in a car crash)?
The law says that the oldest person is taken to have died first. If more than two persons die simultaneously then they are taken to have died in the order from oldest to youngest. Where the trustees (directors of the trustee) have nominated each other in their death benefit nominations, then it will follow that order.
After a trustee dies, their legal personal representative may act as either a trustee of the fund, or as a director of a body corporate that is the trustee of the fund. So if all the trustees (or directors of the trustee) die at the same time, then the SMSF remains an SMSF until the death benefits are paid. At this point, the legal personal representative must cease to be a trustee and the fund will have to satisfy the basic conditions in order to continue as a SMSF - that is other members must have joined and become trustees.

Does the SMSF have to apply for an ABN?
Yes. The SMSF through the Trustee(s) will obtain an ABN as part of registering with the ATO and choosing to become a regulated superannuation fund.

How much will it cost to setup and maintain my SMSF?

Establishment Fee (Excl. GST) $950 (New Funds Only)
Administration Fee (Excl. GST)    
Gross Aggregate Value of Fund    
First $100,000 2.5% p.a. 0.2083% p.m. 
Amount Over $100,000 0.5% p.a. 0.0417% p.m..
Minimum Administration Fee $208.33 per month
Contribution Fee                                                  NIL  

Miscellaneous Fees (Excl GST)

1. Transaction fee for Prescribed No. of Transactions 50 per year
Transaction Fee for each Transaction in excess of the Prescribed No. $20
2. Member Fee for Prescribed No. of Fund Members 2
Member Fee for each member if the Prescribed No. is exceeded $100
3. Time Cost Hourly Rate                                                                          $200
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