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Understanding Self Managed

Superannuation Funds
Version 5.1
This document provides some additional information to help
you understand the financial planning concepts discussed in
the SOA in relation to Self Managed Superannuation Funds.

This document has been published by This document contains general information
GWM Adviser Services Limited AFSL about the benefits, costs and risks
230692, registered address 105-153 associated with certain product classes and
Miller St North Sydney NSW 2060, ABN strategies. It is designed for use in
96 002 071 749 for use in conjunction conjunction with a Statement of Advice that
with Statements of Advice prepared by its takes into account the circumstances and
authorised representatives and the objectives of an individual. Before making a
representatives or authorised commitment to purchase or sell a financial
representatives of National Australia Bank product, you should ensure that you have
Limited, Godfrey Pembroke Limited, obtained an individual Statement of Advice.
Apogee Financial Planning Limited, As legislation may change, you should
Meritum Financial Planning Limited, JBWere ensure you have the most recent version of
Limited and Australian Financial Services this document.
Licensees with whom it has a commercial
services agreement.
Self Managed Investment guidelines
HOW TO READ Superannuation Funds Legislation requires the trustees of SMSFs
THIS DOCUMENT For individuals seeking to own direct prepare and implement an investment
investments within superannuation strategy that includes the:
Managing your finances to meet or gain greater control of their • risk/return profile of selected
your day to day requirements superannuation portfolio, Self Managed investments in light of the
as well as your long-term goals Superannuation Funds (SMSFs) can be investment horizon
can be a complex task. There
an attractive alternative.
are all sorts of issues you need • diversification of fund assets
to consider such as taxation, SMSFs can facilitate all major
• liquidity of fund assets,
legislation, protecting your wealth superannuation functions including:
and assets, associated costs and • ability of the fund to attain life
• accepting new superannuation
the inherent risks of investment. insurance for members and
When undertaking a financial plan contributions
it is important you understand how • housing superannuation funds received • ability of the fund to meet current and
these issues will impact you and from a change in employment, and prospective liabilities.
what you should expect over time.
• paying a retirement income. This strategy must be documented,
Your financial adviser will provide monitored regularly and updated
you with a Statement of Advice
(SOA) which sets out the details
Considerations in establishing where required.
of the advice and how it will meet SMSFs In addition, a SMSF may only purchase
your goals and objectives. certain types of investments from you,
Members
This document provides some an associate or another individual or entity
additional information to help you A SMSF must have between one and who is deemed to be a related party.
understand the financial planning four members. No member is allowed Examples include:
concepts discussed in the SOA to be an ‘employee’ of another member
• shares listed in Australia or an
in relation to Self Managed unless related.
approved overseas stock exchange
Superannuation Funds.
It is very important you read this
The sole purpose test • units in widely held unit trusts, and
document to help you understand To meet the sole purpose test, SMSFs • business real property used wholly for
the benefits of the strategies must be established for: any business purpose.
recommended to you and the
• benefits to members upon retirement; or
associated costs and risks. The transfer of any other assets may
• death or ancillary benefits to members. attract a penalty of imprisonment.
Please contact your adviser if
you do not understand anything,
The trustee of a regulated superannuation Cost considerations
or need further information or
clarification. fund must comply with the sole purpose
test to be eligible for the taxation The costs associated with establishing a
concessions available to a complying SMSF may include:
superannuation fund. • the preparation of a trust deed including
updates following legislative changes
• in the event of a corporate trustee,
the costs of establishing and using
this framework
• the costs of using and establishing the
administrative framework and,
• the accounting, audit and ongoing
administration of the fund.

Understanding Self Managed Superannuation Funds | 3


Establishing the trustee/s A SMSF may have a corporate trustee Trust deeds are available from:
providing: • a solicitor
The trustee is responsible for compliance
with a range of investment related • each director of the company is a
• an accountant, or
requirements including: member of the fund, and
• a specialised SMSF service provider
• the investment strategy covenant • each member of the fund is a director
of the company. The major clauses of a trust deed will
• various restrictions on investments and
normally address:
benefits including those related to:
Single member funds • the establishment of the fund
–– lending to members or their relatives
Where a SMSF has only one member, • the structure and purpose of the fund
–– acquiring assets from members or that person may elect to have a corporate
their relatives trustee. In this case, the member must: • details of who can be a trustee
–– in-house assets • be the sole director of the trustee • how to appoint and remove trustees
–– arms-length transactions company or;
• the decision making powers of
• there can only be two directors of the trustee
–– borrowing by the fund
the trustee company, however the
• who can be a fund member
–– member reporting obligations single member:
–– must not be an employee of • who can make contributions
–– contribution standards, and
the other director of the trustee • when to pay benefits to members
–– benefit payments standards.
company, or
• ability for the fund to take insurance on
While trustees may outsource certain –– must be related to the other the lives of members
functions to external service providers director of the trustee company.
such as a fund administrator or an • members’ benefit entitlements
accountant, the ultimate responsibility and Alternatively if the single member fund • what investments the fund can make
accountability for the fund always lies with does not wish to have a corporate trustee,
the trustees. the fund must have two individuals as • fund records, audit requirements,
trustees. One of the individual trustees disclosure and reporting requirements
The trustee of a SMSF can be a corporate
must be the member along with: • the appointment of actuary, auditor
trustee (ie: a private company) or
individuals who are members of the fund. • any other person provided the member and managers.
is not an employee of that person
Where the trustees are individuals, the selected to be the other individual
trustee arrangements must be such that Advantages of SMSFs
trustee, or
(subject to limited exceptions):
• any other person who is a relative of Direct investment choice
• all members are trustees, and
the member. You can invest directly in your own
• each individual trustee must be chosen combination of investments, for
a member. Establishing a trust deed example, shares, property, fixed interest
A trust deed is commonly referred to investments, managed funds and cash.
This arrangement promotes true self
as ‘the governing rules of the fund’. You may also include business real
management of the fund by ensuring all
A trust deed is a legal document that property (commercial property).
the members have the opportunity to be
involved in making decisions that directly establishes the existence of the fund and
Access to wholesale managed funds
affect their superannuation. rules regarding its operation when it is
properly executed. You may gain the benefit of access to
wholesale managed funds where the
investment charges are lower than retail
managed funds.

4 | Understanding Self Managed Superannuation Funds


Consolidation Expertise and performance Broadly speaking you may choose from:
You have the ability to have up to four A high level of flexibility in investment • a professional administration service
members in a SMSF. You are therefore choice requires sound knowledge and for all services required in conjunction
able to combine your superannuation experience on behalf of the members/ with the use of a financial adviser
benefits into one strategy to reduce trustees. for investment decisions and other
ongoing costs and increase the potential key decisions such as commencing
for compounding capital growth. Time consuming a pension, contributions to and
withdrawals from the fund, and
It is reasonable to expect a SMSF will
Tax planning
take up a considerable more amount • an accounting firm for compliance and
You have the ability to reduce taxation of time for the member than alternative tax returns in conjunction with the use
liabilities within the fund by selecting a superannuation fund offers. of a financial adviser for investment
tax effective mix of investments, including decisions and other key decisions such
franked dividends. Investment earnings are When are SMSFs as commencing a pension, contribution
subject to tax at a maximum rate of 15%. appropriate? to and withdrawals from the fund
and then completing the trustee
Estate planning A SMSF is most appropriate for responsibilities yourself.
investors who:
SMSFs provide estate planning
• prefer to have direct control over their From your perspective, the major
opportunities where there is more than
retirement funds difference between these options
one member in the fund.
is who is responsible for the prudent
A member of a SMSF is able to a have • wish to be involved in investment management of the fund.
a non-lapsing binding nomination which decisions, and
The Superannuation and Insurance
allows them to specify how their benefits • wish to gain from the flexibility and Supervision (SIS) legislation codifies some
are to be distributed on their death. estate planning benefits associated of the most important fiduciary duties of
with SMSFs. trustees in formal covenants. The codified
Disadvantages of SMSFs duties exist alongside trustee duties under
SMSF members must be prepared for
common law. For trustees, SIS means
Cost barriers the responsibilities associated with being
their basic duties are clearly spelt out.
a trustee of a regulated superannuation
The cost may vary depending on the For members, SIS establishes statutory
fund. Members who are prepared to pay
fund balance, complexity of investments rights to civil action for loss or damage
for outsourcing much of the administration
and level of outsourcing. You should due to breach of covenants.
and investment management of the fund
consider the total ongoing costs
will not need to commit as much of their
associated with maintaining an SMSF
own time to the fund but will need to be
as this can be significant.
Upfront costs in establishing the fund
prepared to pay the associated fees for
these services.
ADDITIONAL
are estimated to be between $1,000 INFORMATION
and $5,000. What level of support is
For information regarding obtaining
Additional costs may also be incurred
appropriate?
personal insurance within a SMSF,
upon winding up a SMSF. While all SMSFs feature direct investment refer to our Understanding
discretion you can choose the extent insurance document.
Legal and compliance obligations of administration support, investment
reporting and compliance. For information regarding borrowing
Although as a member/ trustee, many
by a SMSF for investment purposes,
responsibilities can be outsourced, the
refer to our Understanding
ultimate responsibility remains with the
gearing document.
trustee. Non compliance can result in
fines and /or imprisonment.

Understanding Self Managed Superannuation Funds | 5


A136895-0717

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