Self-managed superannuation funds (SMSFs) are similar to the more typical super funds managed by financial institutions and professional investment managers, in that they are used to save money for retirement, and to invest these savings to further grow your super balance.

The main difference is that self-managed super funds are not handled by professional investment managers – instead, they are private superannuation funds, regulated by the Australian Taxation Office (ATO) and managed independently by you.

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Learn more about superannuation

Should I start a self-managed super fund?

Self-managed super funds allow for up to four members who must all be trustees, and the fund’s sole purpose must be to providing for the retirement of members. This may include accessing a lump sum, an income stream, or death benefits.

If you choose to set up SMSF superannuation in Australia, you are responsible for all decisions relating to the fund, and are expected to be compliant with the laws governing super funds.

If you run a self-managed super fund you will need to:

  • Set and follow an appropriate investment strategy for your risk tolerance and retirement needs
  • Have the financial experience and skills required to make sound investment decisions
  • Have enough time to research investments and manage the fund
  • Budget for ongoing expenses such as professional accounting, tax, audit, legal and financial advice
  • Keep comprehensive records and arrange an annual audit by an approved SMSF auditor
  • Organise insurance, including income protection and total and permanent disability cover for super fund members

Where can I get help setting up an SMSF?

It is recommended that before committing to starting a self-managed super fund, you conduct thorough research, evaluate your financial position and seek professional advice.

Maintaining a self-managed super fund is likely to require a lot of time and specific financial knowledge and skills, so you may want to speak to professionals who can guide you through the administration requirements and assist with investment decisions as well.

Financial services professionals you approach could include:

  • An accountant, for assistance with the fund’s accounts and operating statements.
  • A tax agent, for assistance with logging tax returns and tax advice.
  • A fund administrator, for assistance with the running of your fund and following the SMSF rules.
  • A legal practitioner, for legal advice and assistance with your fund’s trust deed.
  • A financial adviser, for assistance with preparing and executing investment strategies.

Remember that even if you get help from professionals, you will still be responsible for ensuring all tasks are completed correctly and adhere to legislation surrounding self-managed super funds.

How do I set up a self-managed super fund?

According to the Australian Taxation Office (ATO), there are several steps that must be taken when setting up a self-managed super fund. Appointing professionals for assistance are among the most crucial.

Once this has been done, the following steps should be taken:

  1. Choose individual trustees or a corporate trustee: Self-managed super funds can have up to four individual trustees, or a company acting as a trustee. Costs, requirements and ownership of assets will differ for each option.
  2. Create the trust and trust deed: The trust deed is the legally binding document that details the arrangements relating to the trust and its beneficiaries, and how the fund is operated. It’s a legal document, so it must be prepared by someone qualified to do so, and must be agreed upon and signed by all SMSF trustees.
  3. Appoint your trustees: All trustees of the fund must submit their consent in writing, and sign a trustee declaration that confirms they understand all of their associated duties and responsibilities. Eligibility criteria applies to anyone hoping to be a trustee.
  4. Check your fund is an Australian super fund: It must be so for the entire financial year to be a complying super fund. If this is not the case, associated assets and income will be taxed at the highest marginal tax rate.
  5. Register your fund: Your SMSF must be registered with the ATO. During the registration process, you can apply for a TFN, ABN and register for GST if you feel necessary.
  6. Set up a bank account for your fund: This is necessary to pay the fund’s expenses and liabilities.

SMSF investments

Though it could be tempting for SMSF investors to start making investments right away, preparing an investment strategy for your self-managed super fund could be better for you and all trustees in the long run.

This strategy should be regularly reviewed and amended in case there are changes to your income, personal circumstances, diversification plans, the liquidity of the fund’s assets or the fund’s ability to pay benefits when members reach retirement.

To be eligible for the same tax concessions generally available to other super funds, your SMSF will need to meet the ATO’s “sole purpose test”. In other words, the fund must be maintained for the sole purpose of being used during the retirement of the member or members, and investments made should reflect this purpose.

There are also some restrictions from the ATO to consider when making your investments, such as:

  • The purchase and sale price of assets must reflect market value
  • The fund cannot borrow money (except in certain limited circumstances)
  • Assets cannot be bought from, and money cannot be loaned to, fund members (except in certain limited circumstances)

How to close a self-managed super fund

Before you can close an SMSF, requirements specified in the trust deed will have to be met and benefits will have to be dealt with.

Once this is done, the ATO recommends appointing an SMSF auditor to complete the fund’s final audit.

Then, the final annual return should be lodged, and outstanding tax and expected liabilities settled before closing the fund’s bank account and winding up the self-managed super fund.

Pros and cons of SMSFs

Setting up a self-managed super fund will give you more control over your investments and how you buy and sell assets, giving you the chance to try to outperform traditional superannuation funds. This could potentially allow you to retire with more money than you might with a more typical super fund.

That being said, SMSFs generally have high set-up costs and annual running expenses, so a large superannuation balance could be necessary for the fund to be cost-effective. Also, they require a high level of financial expertise to manage, as well as a significant time commitment, which may not suit your retirement planning.

Alternatives to SMSFs

If you feel a self-managed super fund isn’t the best option for you, you may want to compare other superannuation options in Australia, such as industry super funds or a fund managed by a financial institution or private company.

You can compare super funds at RateCity to get a better idea of which superannuation investment options, fees, features and benefits may best suit your financial situation. Be sure to check the relevant product disclosure statement (PDS) and/or financial services guide before making any decisions. 

Is an SMSF right for you? If you're not sure which super option may be right for your personal objectives, consider contacting a financial adviser or financial planner for more personal financial advice.

Frequently asked questions

How do I set up an SMSF?

Setting up an SMSF takes more work than registering with an ordinary superannuation fund. 

An SMSF is a type of trust, so if you want to create an SMSF, you first have to create a trust.

To create a trust, you will need trustees, who must sign a trustee declaration. You will also need identifiable beneficiaries and assets for the fund – although these can be as little as a few dollars.

You will also need to create a trust deed, which is a document that lays out the rules of your SMSF. The trust deed must be prepared by a qualified professional and signed by all trustees.

To qualify as an Australian superannuation fund, the SMSF must meet these three criteria:

  • The fund must be established in Australia – or at least one of its assets must be located in Australia
  • The central management and control of the fund must ordinarily be in Australia
  • The fund must have active members who are Australian residents and who hold at least 50 per cent of the fund’s assets – or it must have no active members

Once your SMSF is established and all trustees have signed a trustee declaration, you have 60 days to apply for an Australian Business Number (ABN).

When completing the ABN application, you should ask for a tax file number for your fund. You should also ask for the fund to be regulated by the Australian Taxation Office – otherwise it won’t receive tax concessions.

Your next step is to open a bank account in your fund’s name. This account must be kept separated from the accounts held by the trustees and any related employers.

Your SMSF will also need an electronic service address, so it can receive contributions.

Finally, you will need to create an investment strategy, which explains how your fund will invest its money, and an exit strategy, which explains how and why it would ever close.

Please note that you can pay an adviser to set up your SMSF. You might also want to take the Self-Managed Superannuation Fund Trustee Education Program, which is a free program that has been created by CPA Australia and Chartered Accountants Australia & New Zealand.

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

Can I take money out of my superannuation fund?

Superannuation is designed to provide Australians with money in their retirement. The government has strict rules around when people can take that money out of their fund because it wants to prevent people eroding their savings before they reach retirement.

As a general rule, you can only take money out of your superannuation fund when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

That said, you can take money out of your superannuation fund early based on one of these seven special conditions:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

What are the risks and challenges of an SMSF?

  • SMSFs have high set-up and running costs
  • They come with complicated compliance obligations
  • It takes a lot of time to research investment options
  • It can be difficult to make such big financial decisions

Can I transfer money from overseas into my superannuation account?

Yes, you can transfer money from overseas into your superannuation account – under certain conditions. First, you must provide your tax file number to your fund. Second, if you are aged between 65 and 74, you must have worked at least 40 hours within 30 consecutive days in a financial year. (Australians under 65 aren’t subject to a work test; Australians aged 75 and over cannot receive contributions to their superannuation account.)

Money transferred from overseas will generally count to both your concessional contributions limit and your non-concessional contributions limit. You will have to pay income tax on the applicable fund earnings component of any money transferred from overseas. You might also be liable for excess contributions tax.

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

Can I choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

What are the age pension's age rules?

Australians must be aged at least 65 years and 6 months to access the age pension. This eligibility age is scheduled to increase according to the following schedule:

Date Eligibility age
1 July 2019 66 years
1 July 2021 66 years and 6 months
1 July 2023 67 years

What are government co-contributions?

A government co-contribution is a bonus payment from the federal government into your superannuation account – but it comes with conditions. First, the government will only make a co-contribution if you make a personal contribution. Second, the government will only contribute a maximum of $500. Third, the government will only make co-contributions for people on low and medium incomes. The Australian Taxation Office will calculation whether you’re entitled to a government co-contribution when you lodge your tax return. The size of any co-contribution depends on the size of your personal contribution and income.

How much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

Is superannuation paid on unused annual leave?

If your employment is terminated, superannuation will not be paid on unused annual leave.

How do you find superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Can I carry on a business in an SMSF?

SMSFs are allowed to carry on a business under two conditions.

First, this must be permitted under the trust deed.

Second, the sole purpose of the business must be to earn retirement benefits.

When did superannuation start in Australia?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

 

 

What contributions can SMSFs accept?

SMSFs can accept mandated employer contributions from an employer at any time (Funds need an electronic service address to receive the contributions).

However, SMSFs can’t accept contributions from members who don’t have tax file numbers.

Also, they generally can’t accept assets as contributions from members and they generally can’t accept non-mandated contributions for members who are 75 or older.

What will the superannuation fund do with my money?

Your money will be invested in an investment option of your choosing.