If you want to know more about SMSF or DIY funds, please following the links below.
What is a self-managed or DIY fund?
A self-managed or DIY fund is a superannuation fund that has fewer than five members. The members of such funds are usually family or business related. Typically, the members of a self-managed or DIY fund are the husband and wife and possibly one or two children. Self-managed or DIY funds have been placed under the supervision of the Australian Taxation Office since late 1999. Prior to this they were supervised by APRA. The structure of a self-managed or DIY fund is essentially the same as any superannuation fund that is managed by an institution. The real difference is that you control and manage the fund on a day-to-day basis rather than a fund manager.
Who should have a self-managed or DIY fund?
Self-managed or DIY funds are more cost effective when the assets of a member reach at least $200,000 or have complex investments within their SMSF portfolios. This allows for greater diversification and makes the running of the fund more cost effective and tolerable. They are typically set up by executives and other employees who have been offered superannuation choice by their employers and are able to make additional salary-sacrificed contributions into their fund, retirees who want to pay their own pensions upon retirement and investors who want to be responsible for the day to day running of the fund, making and actioning all the investment decisions and maintaining all the records necessary to assist their accountant in completing the year-end compliance work.
What are the advantages of a self-managed or DIY fund?
Self-managed funds provide investment control, flexibility and maximum tax benefits for people who wish to more actively manage their superannuation assets. The fund allows you to tailor the investment strategy to meet the changing personal circumstances of the fund members or changing economic conditions. A self-managed or DIY fund can invest in most investments including shares, term deposits, managed funds, property and overseas assets. The fund can also acquire listed securities at market value or business real property at market value from a member, thus providing greater flexibility in your investment, taxation and retirement planning.
A self-managed or DIY superannuation fund can provide additional flexibility to meet the members requirements as they cab be administered as either:
A self-managed or DIY fund can have one member in the accumulation phase and another in the pension phase.
Therefore, when you choose to retire there is no need to change funds provided that your deed has been set up to enable the payment of pensions.
All of the above points present opportunities for more meaningful integration of superannuation into a member's total investment portfolio and retirement plan.
Who can be a trustee and what are the duties of a trustee?
A self-managed superannuation fund can either have a corporate trustee or individual trustees.
In the case of a corporate trustee, all the members of the fund must be directors of the corporate trustee and all directors must be members of the fund. There can be up to four directors/members in this scenario. You can have a 2nd Director (provided that the Director is not your employer) and there are only the two of you as Directors of the corporate trustee. The 2nd Director can however be your employer provided that your 2nd Director is "related" to you and you two are the only directors of that company.
In the case of individual trustees, each member must be a trustee of the fund. If the fund is a single member fund, there must be at least one additional individual trustee as, under trust law, a person cannot act as trustee for themselves alone. This additional trustee must be either related to the member or not be the employer of the member. As a general point, no member of a self-managed or DIY fund can be an employee of another member unless they are related.
You can't be a trustee if you are a disqualified person. Disqualified people include people who have been convicted of an offence involving dishonesty and bankrupts.
Some of the duties of a trustee include:
- Formulating an investment strategy for the fund taking into account the financial circumstances of all members of the fund. This investment strategy must be regularly reviewed having regard to liabilities, risk/return, diversification and liquidity considerations.
- Keeping the assets of the fund separate from other assets personally held by the trustees or members.
- Ensuring that the fund's regulatory obligations are met (i.e. lodging all the fund's returns on time and ensuring the fund complies with all relevant legislation and regulations).
- Keeping and retaining minutes of trustee meetings, records of trustee changes and consents to act as trustees and retaining copies of all reports given to members.
What are the tax benefits of a self-managed or DIY Fund?
The maximum tax rate on all income earned by the fund is 15%. Assets held for more than twelve months and sold at a capital gain are taxed at the maximum rate of 10%. The fund can further reduce any taxation liability by investing in investments that pay fully franked dividends that have been already taxed at the company rate of 30%. The fund is entitled to a refund in cash equal to the difference between the 30% company rate and the 15% maximum rate of the fund. Once the fund enters the pension phase, all investment earnings are no longer subject to tax. In situations where the pension fund has invested in fully franked dividends, the imputation credits are refunded in cash.
How much will it cost to establish my fund?
For a full list of our fees please refer to our fee schedule.
What are the ongoing compliance costs?
For a full list of our fees please refer to our fee schedule.
How do I set up a self-managed or DIY fund?
To set up a self-managed or DIY fund, you need to complete our Application Form. Listed below are the steps involved in establishing a SMSF;
- Have the trust deed prepared which includes appointing the members and trustees
- Elect to become a regulated fund with the ATO in order for the fund to receive the relevant tax concessions
- Obtain an Australian Business Number (ABN) and a Tax File Number (TFN) from the ATO
- Establish a fund bank account in the name of the fund that clearly identifies the trustee/(s)
- Formulate an investment strategy for the fund
What Investments are allowed in a self-managed or DIY fund?
The Fund may invest in property, shares, cash, term deposits, managed funds etc.
- The Fund can acquire business real property or listed assets from a member at "market value"
What can't a self-manged or DIY fund do? - The Fund cannot lend money to a member or a relative or an associated entity.
- The Fund is not allowed to borrow money or charge the assets of the fund (that is, the fund assets cannot be mortgaged, or be subject to a lien).
- The Fund cannot invest more than 5% of its assets by way of loans to or investments in an employer sponsor or related party.
- The fund is not allowed to acquire an asset from a member or a member's relative unless the asset is a listed security, managed fund or business real property.
- A member generally cannot access their preserved superannuation benefits prior to retirement age except for exceptional circumstances ie "financial hardship".