What is an SMSF?

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An SMSF is a self-managed superannuation fund. SMSFs allow members to directly invest their own retirement savings, instead of paying others to do it on their behalf.

About 30 per cent of Australia’s superannuation assets are held in SMSFs, while about 70 per cent are held in funds that are managed by professional advisers.

Although the point of an SMSF is to have direct control over investment decisions, there are rules about what members can and can’t do with their money. That’s because the government doesn’t want people to make poor decisions and lose their retirement savings.

What is an SMSF investment strategy?

All SMSFs are required to have a documented investment strategy. This investment strategy must explain the fund’s investment objectives and what types of investment it can make. It must also consider whether insurance is needed for each member.

An SMSF investment strategy must be reviewed at least once per year to ensure it remains relevant.

SMSFs are allowed to buy shares, property and various other assets, although restrictions apply. All purchases must be made on an arms-length basis, while prices must reflect fair market value. As a general rule, SMSFs can’t buy assets from fund members or related parties. Also, SMSFs are generally prohibited from borrowing money. One exception is using a limited-recourse borrowing arrangement to buy an investment property.

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How do I set up an SMSF?

Setting up an SMSF is complicated, so you might want to pay an accountant or financial adviser to oversee the process.

The first step is to choose a structure for the SMSF. You can have either up to four individual trustees or one corporate trustee. Different structures impose different financial and legal obligations.

The second step is to create the trust, which requires having trustees and assets. You must then create a trust deed – a legal document that records the rules of the trust.

Trustees also have to be officially appointed. This is done by getting them to sign a declaration, acknowledging their legal obligations.

Next, you have to check that the SMSF meets Australian residency conditions, register the fund, set up a bank account for the fund and get an electronic service address.

Finally, you must prepare an exit strategy. This is another official document that explains why and how the SMSF would close – including what would happen to the money.

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How is an SMSF taxed?

Assessable income generated by SMSFs is generally taxed at the concessional rate of 15 per cent. Some exceptions apply.

What compliance obligations does an SMSF have?

SMSFs have a range of annual obligations, including:

  • Appointing an approved SMSF auditor
  • Preparing financial accounts and statements
  • Lodging an annual return
  • Making any minimum income stream payments
  • Reviewing the fund’s investment strategy
  • Valuing the fund’s assets
  • Obtaining an actuarial certificate (if required)

SMSFs are also required to maintain all relevant records – some for as long as 10 years.

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