What is a Self Managed Super Fund (SMSF)?

1 February 2018
When comparing your options for superannuation you may have come across the term ‘Self-Managed Super Fund’ (SMSF). We break down exactly what an SMSF is and what is required to be a trustee.

What is a Self-Managed Super Fund?

A Self-Managed Super Fund (SMSF) is a superannuation fund designed for members to have direct control over their retirement savings and investments. It differs from a normal super fund because all of the members act as trustees, with the authority to make the day-to-day decisions about how the fund operates and how to invest, subject to the superannuation laws. Trustees are also responsible for the overall investment strategy and all legal and statutory requirements.

“If you set up an SMSF you become a trustee of the fund. This means you’ll be responsible for managing your SMSF according to its trust deed and the laws and rules that apply to SMSFs. The key principle is that you run your SMSF for the sole purpose of providing retirement benefits to fund members.”  – ATO

How does an SMSF work?

An SMSF can have up to four members, all of whom are trustees of the Fund. As trustees, each member is personally liable for all decisions made by the fund. Unlike public offer funds (industry or retail funds), SMSFs are regulated by the Australian Taxation Office (ATO) rather than the Australian Prudential Regulation Authority (APRA). Trustees must comply with both the superannuation law and the SMSF governing rules or potentially face significant penalties.

Why set up an SMSF?

In a speech given to the SMSF Professionals’ Association of Australia (SPAA), former Chair of the Super Review Jeremy Cooper outlined the following potential benefits of an SMSF:

  • SMSFs can pursue asset allocations that would be difficult to implement in an APRA-regulated fund
  • SMSFs can have longer-term investment horizons (ie not chasing short-term performance driven by league tables and ‘peer risk’)
  • SMSFs can be run in a tax-efficient manner, particularly in transition to retirement and in managing assets supporting a pension
  • there may a better alignment of interests in an SMSF – members can make well informed decisions in their own interests with minimal agency costs
  • members may be able to negotiate directly for reduced prices for the various services they need (e.g. accounting, administration and broking).

You can find out more about the benefits of a SMSF here.

The pros and cons of self-managed super funds

An SMSF is one retirement investment option for people who want direct control over their savings and investments, as it allows the members to invest the SMSF money in the mix of assets they prefer. However, an SMSF involves the trustees dedicating time to manage the asset selection, brokerage and legal compliance.

Advantages of SMSFs

  • Control: members have control and flexibility over what their superannuation money is being invested in.
  • Potential tax savings: according to the ATO all earnings and contributions are taxed at a maximum rate of 15% while members are in accumulation phase. There are additional tax concessions that apply when members move into pension phase.
  • Lower fees: if the balance is large enough, an SMSF can be relatively cheaper to maintain compared to retail super funds.
  • Range of investments: SMSFs can potentially use strategies and invest in assets that may not be available directly to a member of an industry or retail fund, such as owning business real property via a limited recourse borrowing arrangement.

Click here for more information on the potential benefits of having an SMSF.

Disadvantages of SMSFs

  • Time: after the initial setup, usually with an accountant, members need to devote time to acquiring and managing their investments as well as administering the fund. As trustee, you are legally responsible for all of the decisions and ensuring the fund complies with the rules. Be prepared to commit your time to meet your commitments, as well research and maintain your investments.
  • Compliance: an SMSF is required to prepare an audited financial statement and tax return each year.
  • Costs: costs to maintain, administer and audit an SMSF can run into several thousand dollars, so you need to ensure you have sufficient capital, and your investments are performing well to make an SMSF cost-effective compared to a regular super fund.
  • Estate planning: There can be some specific issues with one and two-member SMSFs should a member pass away. It is important to seek legal advice and have plans in place to cover this situation.

Compare SMSF savings accounts

If you’re interested in owning an SMSF, Canstar compares a number of SMSF savings accounts. Here is a snapshot of some funds on the Canstar database for someone living in New South Wales with a balance of $10,000.


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