SMSFs: the five essential facts

Self-managed super funds (SMSFs) remain a popular vehicle for investors to build their retirement savings. According to the Australian Taxation Office (ATO), 99.5 per cent of all super funds are SMSFs. A total of 29 per cent of the $2 trillion in super fund assets are in SMSFs and the average SMSF balance now exceeds $1 million.

While SMSFs are a great option for people who have the time and inclination to mange their super themselves, it pays to be aware of the basics before deciding to open your own fund.

1. Meeting the sole purpose test

Every SMSF must meet the sole purpose test. This means the fund must only be run to provide income in retirement for members. Funds that don’t meet this test won’t be able to receive concessional taxation benefits that apply to super fund assets.

If the ATO does form the view the assets in the SMSF do not meet the sole purpose test it could impose civil or criminal penalties on the fund members.

2. Ensuring the fund meets compliance requirements

There are strict rules every SMSF fund member must meet to ensure the fund complies with regulatory requirements. These include ensuring either a corporate or individual trustee is appointed to the fund, creating a trust and a trust deed to determine how the fund is administered and recording members’ tax file numbers.

The ATO can take various steps to ensure funds found not to be compliant are brought into line with its requirements. For instance, the ATO might require members to undertake education and training.

Serious breaches might lead to the ATO freezing the assets in the fund.

3. Preparing an investment goal and strategy

Every fund should have a clearly articulated, written investment strategy and goal. This will set out the performance expectations of the fund and the objectives the fund is designed to meet. For instance a goal might be for the fund to have $1 million in assets before the members retire. The investment strategy will set out the types of investments and asset classes in which the fund can invest. These two documents act as a blueprint for how the fund should be run.

4. Ongoing monitoring

All SMSF members are required to monitor how the fund is tracking against its investment goals and objectives on an ongoing basis. This is especially important when the fund members’ circumstances change. If a member retires, receives a redundancy or contracts a serious illness, for instance, the goal and investment strategy must be amended to take this into consideration.

5. Seeking advice

Even if you want to take responsibility for your own superannuation, it’s still important to seek advice. This will help to ensure the fund meets regulatory requirements and to ensure assets are positioned to maximise members’ wealth in retirement.

To find out how we can help to ensure you are making the most of the assets in your SMSF, and at the same time stay within the law, please contact us today.

The content of this site is dated July 2019 and has been prepared by Merit Wealth Pty Ltd, ABN 89 125 557 002 under Australian Financial Services Licence No. 409361, (“Merit Wealth”).Merit Wealth is wholly owned by Hayes Knight Financial Services Pty Ltd, (HKFS). HKFS is a subsidiary of Easton Distribution Services Pty Ltd (ABN: 67 167 184 072), a wholly owned subsidiary of Easton Investments Limited (ABN: 48 111 695 357), (EAS) an ASX listed company. This information has been given in good faith and has where applicable been derived from sources believed to be accurate at its issue date. However, it should not be considered a comprehensive statement on any matter nor relied upon as such. General Advice WarningMerit Wealth Pty Ltd recommends that you obtain further information and conduct your own due diligence on the services it is offering and obtain your own professional advice on whether they are appropriate for you and your practice. This information has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information consider its appropriateness. © Merit Wealth Pty Ltd. Click here to Download the FSG (part 1). Click here to view our Privacy Policy, Privacy Collection Statement and Complaints Process. Click here to view our Referrer Charter.

Complaints Process