Self Managed Super Fund (SMSF)

A self managed super fund is basically a “do-it-yourself” super fund which is considered an alternative to super funds regulated by APRA (The Australian Prudential Regulatory Authority). The term “self managed superannuation fund” is defined in s17A of the SISA and must satisfy the following conditions:

  • The fund must have fewer than 5 members

  • All members are individual trustees (or directors if a corporate trustee) and there are no other trustees, unless the fund has only one member or a member is under a legal disability

  • Members of the fund are not permitted to be an “employee” of another member (or associate) unless they are relatives of another member.

Having a SMSF means you have more control of the investment strategy of your fund but it also means you are responsible for the overall operation of the fund even when you enlist the help of external services.

The fund’s compliance with superannuation law is the responsibility of the trustees and they are legally accountable for making sure the fund complies with all regulations. In setting up a SMSF there are numerous administrative procedures to be carried out to ensure the fund is a complying fund and will have access to the various favourable tax concessions just like larger super funds. The fund will be required to have a suitable trust deed, trustees of the fund will be appointed and ATO trustee declarations completed. The ATO, the regulator of SMSFs must be advised that you are establishing a SMSF. You will be required to open a bank account for the SMSF for all transactions, in and out of the fund.

The trust deed contains the rules of the SMSF and sets out the rights and obligations of the trustee, members and other parties who deal with the fund. The foundation of the SMSF regulatory system is the “sole purpose test” which is to solely provide retirement benefits to members on retirement or in the event of the member’s death, benefits for dependants or the member’s legal representative.

An important component of a SMSF is the investment strategy of the fund. All super funds are required to have an investment strategy which needs to take into consideration the circumstances of all the fund members, including their age and tolerance for risk. The trustees also need to consider the diversification of the fund’s investments, liquidity of the funds and the insurance needs of the members.

In order to provide financial advice on SMSFs, an adviser must have a licence or act as an authorised representative of an Australian Financial Service (AFS) licensee.