Managing your Self Managed Superannuation Fund (SMSF)

Australians can choose to contribute their personal superannuation contributions to an independently managed superannuation fund or to a self managed superannuation fund.

However, far too many people are setting up self managed superannuation funds without being fully aware of the time and cost involved in running their own fund, according to Financial Dynamics Client Manager, Darren Wearne.

Self managed super funds (also known as DIY funds) perform the same role as other funds, by investing contributions and making them available to members on retirement. The difference is, generally, that the members of self managed super funds are also the trustees – they control the investment of their contributions and the payment of their benefits. With all members being trustees, they are in a position to ensure their interests as members are protected.

Generally, a superannuation fund is a self managed super fund if (with a few exceptions):

• it has a trust deed that meets the requirements of the Superannuation Industry (Supervision) Act 1993 (SIS Act)
• it has four or less members
• each member of the fund is a trustee or a Director of a trustee company
• no member of the fund is an employee of another member of the fund, unless they are related, and
• no trustee of the fund receives any remuneration for their services as trustee

A self managed super fund must be maintained for the sole purpose of providing benefits to members upon their retirement, or to their dependants if a member dies before retirement.

You will need around $200,000 in the fund (but estimates vary) to make set-up and yearly running costs worthwhile. You will also need professional accounting, tax, audit and legal advice to run things properly and the time, skill and interest to manage the fund well.

You must also follow strict rules regulated by the Australian Taxation Office. For your information, Darren has compiled a list of just some of the prohibited activities.

Briefly, you must NOT:

• run a business within your fund. (You should have a separate bank account and pay expenses of the fund from that bank account only).
• provide financial assistance to friends or family.
• make investments to help someone else out.
• buy art as a fund investment and hang it on your wall.
• buy wine as a fund investment and drink it.
• buy jewellery as a fund investment and wear it.
• buy art, wine or investment jewellery for capital growth or to rent out to unrelated parties, unless these approaches follow your fund’s investment strategy.
• use any of the assets of your fund for your own personal use or allow members or related parties associates to use those assets.
• invest without considering your strategy and your overall goals for retirement.
• make decisions without documenting the decision.
• throw out documents that explain what your fund has been doing.
• throw out documents after returns have been lodged.
• mix your fund money with other money.
• have the assets of your fund in another entity’s name.
• provide financial assistance from your fund to yourself, members or their relatives
• use an asset of your fund for yourself or let a relative use an asset of the fund.
• borrow money (except in limited circumstances- click here for further details)
• use assets of your fund as security for loans.
• allow your fund’s bank account to go into overdraft.
• accept contributions if a member is not entitled to contribute.
• withdraw the benefits before retirement.

If you are interested in setting up a Self Managed Superannuation Fund or require further information, please contact Darren at Financial Dynamics 02 44 212345 or email darrenw@financialdynamics.com.au.

Tel: 02 4421 2345Fax: 02 4421 2340