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WHAT IS A SMSF?

What is a Self Managed Superannuation Fund?


A Self managed Superannuation fund (also referred to as a SMSF or DIY super fund) is a fund that allows all members to act in the capacity of trustees for the fund. Trustees are responsible for the administration of the fund and are incomplete control investment strategy. Being able to exert total strategic control over the fund is often what prompts people to set up this type of Superannuation option for themselves. Members, as trustees are ultimately responsible for everything that happens within the fund.


As with any type of investment vehicle, total control of a SMSF comes with total responsibility for the actions of the fund. There are obligations regarding compliance and administration that new trustees must embrace before establishing a new fund. The trustee of larger, commercial Superannuation ventures is usually someone with an abundance of industry specific experience; therefore the trustees of a SMSF should consider their own level of experience and knowledge prior to setting up a fund. The trustees are responsible for everything that happens within the fund.


In the past small business owners and the self employed have made up the bulk of SMSF trustees. This is because these people are traditionally familiar with taking on business roles and responsibilities that require compliance with specific regulations. Over time this has changed and a growing number of high income earners are realising that a SMSF is a cost effective way to manage their retirement finances, free from the escalating fees and charges of a commercial super fund. Since 01 July 2005 and the introduction of the Australian Government’s Choice of Superannuation fund initiative; it has become easier for employees to create their own SMSF to which their employers are able to contribute.


When is a Superannuation fund considered ‘Self Managed’ or ‘DIY’?


The following is a list of conditions to which a fund must adhere in order to be considered a SMSF

  • • There must be no more than four members
  • • One member of the fund shall not be employed by another member of the fund (unless they are related)
  • • Each of the members is a trustee and none of the trustees are renumerated or financially compensated for their role as a trustee


OR


  • • If the fund nominates a corporate trustee each member must be a director of the company. Neither the corporate trustee nor the directors may receive remuneration or financial recompense for their roles in the fund.

Funds with only one member

Although it is possible for a SMSF to exist with a single member there are several rules which must be adhered to in order for this to happen. A SMSF may exist with only one member. The single member fund may have a corporate trustee and that member must comply with the following.

  • • The member must be the sole director of the trustee company


Alternatively a single member fund may have two individuals as trustees. In order for this to happen the trustees must comply with the following


  • • Both individuals are the only two directors of the trustee company AND are related to each other.


OR


  • • Both individuals are the only two directors of the trustee company AND one is not an employee of the other

Is there anyone who is unable to participate in a SMSF?


There are some individuals who are unable to be members of a SMSF. ‘Disqualified’ persons are not permitted to be a trustee or director of a trustee company of a SMSF. The following is a list of reasons why a person may be considered ‘disqualified’


  • • The person has been convicted of an offense involving dishonesty
  • • The persons is an undischarged bankrupt
  • • The person has been penalised under the Superannuation Industry Supervision Act (1993)
  • • The person has been disqualified by a regulator


In addition to this a company may not act as a trustee if any of the following criteria apply


  • • Action has commenced to disband or cease operations within the company
  • • A receiver or liquidator has been appointed to the company
  • • A responsible officer of the company has been disqualified (director, treasurer, executive etc)


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