- self-managed super
- corporate services
running a self-managed super fund (SMSF)
Running your own superannuation fund can be quite demanding in terms of time and there are no real shortcuts. Any mistake can cost you more money in lost returns or penalties than any benefits.
Once your fund is established, it’s time to make it work.
You will need to:
- prepare an investment strategy
- start accepting contributions and/or rollovers
- start investing money in the fund according to your investment strategy, trust deed and super legislation
- keep records to meet your tax and legal obligations
- appoint an independent auditor and, if necessary, an actuary, and
- pay benefits to members where necessary.
an investment strategy
A written investment strategy is a legal requirement of running an SMSF. It demonstrates that you have a coherent approach to meeting your fund’s objectives.
An effective investment strategy will consider:
- risk versus return
- liquidity (ie how easy is it to turn assets into cash?)
- ability to pay a benefits when due (eg members retire)
And your ipac financial adviser can help you prepare an effective one.
You may invest in anything you wish provided it is consistent with the fund’s governing rules, investment strategy and super legislation.
Under super law, a super fund must meet the ‘sole-purpose’ test, which in short means it must be focused on providing benefits for members on their retirement or reaching age 65, or to their dependants if a member dies. An SMSF is not there to provide financial assistance to, or confer benefits on, members or related parties (eg you cannot use the assets in your SMSF, such as a holiday house, or have an artwork hanging on your lounge room wall).
Restrictions to be aware of
- Investments must be made at an arm’s length basis.
- You cannot lend money or provide direct or indirect financial help from the fund to members or related parties, including companies and trusts.
- Your fund cannot acquire assets from a member or related party, unless they are listed securities, such as shares and managed funds, or a business property. This means you can’t transfer your own home or the holiday house into your SMSF.
- An SMSF fund cannot invest more than five per cent of total assets in ‘in-house’ assets, such as loans to, or investments in, or leases, by a related party.
- An SMSF cannot borrow money except in very strict circumstances.
- See more information on loans, property and SMSFs
According to the Australian Taxation Office, borrowing is a common area where mistakes are made. Investing in property is a popular attraction of SMSFs and needs to be considered carefully. What could seem like a clever investment could turn into an expensive mistake.
And this is where the guidance of a professional financial adviser will ensure you avoid the pitfalls of SMSFs and property.
- getting money into your SMSF – Greg talks about accepting contributions and rollovers
- managing your SMSF – hear about what’s involved in running your SMSF
- commencing pensions from your SMSF – how to use your SMSF to pay yourself a pension