Common Questions about SMSFs

Relevant For:

Business owners, investors, and high-net-worth individuals considering a self-managed superannuation fund (SMSF).

Key Points:

  • SMSFs allow 1-6 members to actively manage investments and retirement benefits.
  • Initial setup costs range from $3,300; annual running costs from $2,750.
  • SMSFs require at least $300,000 in assets to be cost-effective.
  • Trustees must comply with strict regulations and maintain accurate records.
  • SMSFs benefit from tax concessions: 15% on contributions and net income, 10% on long-term capital gains.
  • SMSFs can accept various contributions and invest in diverse assets, adhering to compliance rules.
  • Professional advice is essential for avoiding costly mistakes and ensuring compliance.

Full Article:

Running a self-managed superannuation fund (SMSF) is becoming increasingly popular among business owners, investors, and high-net-worth individuals as a way to build wealth and protect assets. However, navigating the rules and potential pitfalls of establishing and managing an SMSF requires ongoing consideration.

What is a SMSF?

An SMSF is a fund set up for 1-6 people, with members acting as trustees or directors. While members are usually related, unrelated business owners also set up SMSFs. Ideal for those who want to actively manage their investment choices and retirement benefits, SMSFs are regulated by the Australian Taxation Office.

Cost of Setting Up and Running a SMSF

Establishing an SMSF usually costs $3,300, covering professional advice, trust deed, and relevant registrations. Ongoing running costs, influenced by investment types, record-keeping quality, and compliance, range from $2,750 to $12,000 annually. To be cost-effective, an SMSF should ideally start with at least $300,000 in assets.

Who Can Be a Trustee?

Trustees, responsible for managing the fund’s assets and making decisions for members’ retirement interests, can be individuals or companies. In funds with 2-6 members, all must be trustees or directors. For single-member funds, the member can act as sole director, or another person can act as trustee or director. Legal representatives can act as trustees under certain conditions.

Who Cannot Be a Trustee?

Individuals are disqualified if they have convictions for dishonesty, are subject to civil penalties, disqualified by regulatory bodies, or are bankrupt. Companies are disqualified if they have disqualified persons in key roles or are undergoing liquidation.

Trustees’ Duties

Trustees must act honestly and in members’ interests, comply with trust deed and regulations, maintain records, prepare accounts and tax returns, and have the fund audited annually.

Tax Concessions

Accumulating funds for retirement enjoys a 15% tax rate on net income and contributions, with a 10% tax rate on long-term capital gains. Pension phase funds can be tax-exempt on income and gains, subject to certain rules.

Contributions to a SMSF

SMSFs can accept employer, voluntary, government co-contributions, after-tax contributions, and roll-overs from other superannuation funds. Contribution limits for 2024/25 are $30,000 for concessional contributions and $120,000 for non-concessional contributions.

Investment Options for SMSFs

SMSFs can invest in a variety of assets, including shares, property, managed funds, bonds, and more exotic assets like artwork and cryptocurrency. However, strict rules apply to ensure investments serve the sole purpose of retirement provision.

Do You Need an Adviser?

Professional advice is crucial for setting up and managing an SMSF to avoid costly mistakes and ensure compliance with rules and regulations. Advisers can assist with trust deeds, audits, and compliance measures, minimising or eliminating tax liabilities in retirement.