What’s All The Fuss About SMSFs?

A Self-Managed Super Fund (SMSF) is a unique and increasingly popular retirement savings vehicle in Australia.

SMSFs offer individuals and families greater control, flexibility, and investment choices than traditional superannuation funds.

In this article, we’ll explore what SMSFs are, how they work, their benefits, and some considerations for those interested in establishing and managing one.

What is an SMSF?

An SMSF is a type of superannuation fund that allows individuals to manage their own retirement savings.

Unlike industry or retail super funds, where investment decisions are made by professional fund managers, an SMSF puts the control firmly in the hands of its members, who are also the trustees of the fund. This level of control is what sets SMSFs apart.

How Does an SMSF Work?

An SMSF can have a maximum of four members, all of whom must also be trustees or directors of the corporate trustee. As trustees, members are responsible for making investment decisions, complying with legal obligations, and managing the fund’s assets. SMSFs can invest in a wide range of assets, including shares, property, cash, and fixed income.

Benefits of an SMSF:
  • Control and Flexibility: SMSF members have complete control over their investment choices and strategies. This allows for a highly tailored approach to meet specific financial goals and risk appetites.
  • Tax Efficiency: SMSFs offer potential tax advantages, particularly for those in retirement. Capital gains, for instance, are often taxed at a concessional rate if the assets are held for more than 12 months.
  • Estate Planning: SMSFs provide estate planning benefits, allowing members to dictate how their assets are distributed upon their passing. This can be especially important for complex family situations.
  • Asset Diversification: With greater control, SMSF members can diversify their investments across various asset classes, reducing risk and increasing the potential for returns.
  • Borrowing for Investments: Under certain conditions, SMSFs can borrow to invest in assets like property, which can magnify returns and portfolio diversification.
Considerations for Establishing and Managing an SMSF:
  • Compliance: SMSFs must adhere to strict regulatory guidelines set by the Australian Taxation Office (ATO). Non-compliance can result in penalties or the loss of tax concessions.
  • Investment Knowledge: Managing an SMSF requires a strong understanding of financial markets, taxation rules, and investment strategies. It’s essential to keep abreast of changing regulations.
  • Costs: While SMSFs can be cost-effective for those with substantial assets, they may not be suitable for smaller balances due to administrative and compliance costs.
  • Time Commitment: Trustees need to invest time in managing their SMSF, including record-keeping, administrative tasks, and annual auditing requirements.
  • Professional Advice: It’s advisable to seek professional guidance from accountants, financial planners, or SMSF specialists

Self-Managed Super Funds (SMSFs) have become a valuable retirement planning tool for many Australians, offering unparalleled control, flexibility, and investment options.

However, the decision to establish and manage an SMSF should not be taken lightly. It requires a solid understanding of financial markets, compliance obligations, and a long-term commitment to effective management.

When approached with diligence and professional guidance, an SMSF can be a powerful vehicle to achieve financial security and retirement success.

Superannuation-Related Obligations Employers Need To Keep In Mind

While the hustle and bustle of operating and managing a business can occupy your mind, it’s important not to forget your superannuation obligations to your employees.
Those who fail to meet their super obligations risk facing severe and even damaging liabilities, penalties and even potential imprisonment. Are you aware of your obligations?

Employees (after entering the workforce) should have a ‘stapled’ super fund that you must pay their super into or the right to nominate a super fund. However, if an employee is not eligible to choose, does not have a fund or fails to notify the employer, the employer must pay their contributions into an employer-nominated or default fund.

The employer-nominated or default fund must be a complying fund (meets specific requirements and obligations under super law) and be registered by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product.

Some super funds may ask that an employer becomes a ‘participating employer’ before they can pay contributions to them. Participating employers may have to make super payments more frequently, such as monthly instead of quarterly.

For example, you need to make sure that you are meeting the super guarantee contributions now for all of your employees, including those who would have previously fallen under the $450 threshold.

Before 1 July 2022, employers who paid their workers $450 or more before tax in a calendar month had to pay superannuation on top of the employee’s wages. Now super must be paid on any payments you make to domestic or private workers if they work for you for more than 30 hours in a week, regardless of how much you pay them.

The minimum amount of superannuation that an employer must pay to their staff in Australia is called the superannuation guarantee (SG).

Under the superannuation guarantee, employers have to pay superannuation contributions of 11% (from 1 July 2023) of an employee’s ordinary time earnings when an employee is: over 18 years, or. under 18 years and works over 30 hours a week.

Currently, it must be paid at minimum four times per year, but from 1 July 2026, employers will be required to pay their employees’ super at the same time as their salary and wages. This will be known as ‘payday super’, as more consistent contributions will mean that superannuation funds should be better able to increase their compounding potential.

Employers can claim a tax deduction for super payments they make for employees in the financial year they make them. Contributions are considered paid when the employee’s super fund receives them.

Missed payments may attract the SGC (superannuation guarantee charge). While the SGC is not tax-deductible, employers can use a late payment to reduce the charge or as a pre-payment of a future super contribution (for the same employee), which is tax-deductible

Have concerns about your obligations as an employer when it comes to super? Why not have a chat with one of our team members, who may be equipped to assist you in this matter?

What Happens To Superannuation When Bankruptcy Is Declared?

Have you ever wondered what happens to superannuation in a situation where someone claims bankruptcy?

Bankruptcy is a legal process that can be commenced when you are declared unable to pay your debts. It is a process that can release you from most debts, provide relief and allow you to make a fresh start.

However, bankruptcy is not a process to enter into lightly.

There are two ways to enter into bankruptcy. These are:
• Voluntary Bankruptcy: When you become bankrupt, the Australian Financial Security Authority appoints a trustee. This trustee is a person or body who manages your bankruptcy.
• Sequestration Order: Where you nominate yourself for bankruptcy by submitting a Bankruptcy Form.

When you become bankrupt, the Australian Financial Security Authority appoints a trustee. This trustee is a person or body who manages your bankruptcy.
The trustee can take any cash or money you have in a bank account at the date of bankruptcy but should leave you with enough for modest living expenses.
During your bankruptcy, you can keep the income that you save. However, if your after-tax income exceeds a set amount, you may have to make compulsory payments. This amount changes with how many dependants you have.
When you are bankrupt:
• You must provide details of your debts, income and assets to your trustee.
• Your trustee notifies your creditors that you’re bankrupt – this prevents most credi-tors from contacting you about your debt.
• Your trustee can sell certain assets to help pay your debts.
• You may need to make compulsory payments if your income exceeds a set amount.

What Happens To Superannuation?

When someone goes bankrupt, their bankruptcy trustee can recover or sell any assets that are considered divisible property.

What is and what isn’t divisible property is set out in the Bankruptcy Act.

A bankrupt’s superannuation is generally not considered divisible property and is not available to a bankruptcy trustee.
However, it depends on when and how it is that you receive your super. If you receive superannuation before or after your bankruptcy begins, your trustee must be notified.

If Received Before Bankruptcy

• Super payments received before bankruptcy are claimable by your trustee
• Any asset purchased with those funds (such as a house) can be claimed by the trustee

For example, if you have taken funds out of your superannuation fund before bankruptcy and you still hold them in your bank account at the time of bankruptcy, the funds will be considered divisible property and you will have to pay any funds still held to your trustee.
This includes both funds taken out as a lump sum and as a pension.

If Received During Or After Bankruptcy

Super payments that are during or after bankruptcy:
• are not claimable by your trustee if it is a lump sum payment
• your trustee cannot claim assets you purchase with those funds, e.g. car.

An exception is where your super isn’t in a regulated fund, approved deposit fund or an exempt public sector scheme. Your trustee can claim super not held in these types of funds.

Received As Income

During bankruptcy, the super you receive as an income stream (e.g. a pension) forms part of your assessable income. If your income exceeds a set amount, you may need to make compulsory payments.

Self-Managed Super Funds

Someone bankrupt cannot be a trustee of a self-managed super fund. If you have a self-managed fund, you must advise your trustee. You must cease acting in this position and notify the ATO within 28 days. See the ATO website for more information about removing yourself as a trustee.
Are you facing bankruptcy and concerned about risks to your superannuation fund? Speak with an licensed professional today

Superannuation & Death: What You Need To Know

What happens to your super when you die? It might not be a question that has cropped up in your mind during your present circumstances, but it is something that you should be concerned about.

Upon the untimely death of someone, their superannuation may be one of the elements of the estate that can be bequeathed and divided between their loved ones (trustees of the estate and beneficiaries.

This is not done through your will though, as it isn’t automatically included unless specific instructions have been given to your super fund. Often this is done through a binding death benefit nomination. These payments are usually paid out in lump sum payments and split between beneficiaries as dictated by the deceased.

However, like any property or asset that can be challenged, the death benefits from superannuation and SMSF can be a legal quandary if the appropriate succession planning measures have not been put into place.

Death benefits are one of the most commonly occurring legal issues that plague the superannuation and SMSF sectors for individuals. Many court cases involving death benefits result from poor succession planning, as individuals who were not stated to be recipients of the payments miss out on what may heirs.

In the event of an individual’s death, the deceased’s dependent can be paid a death benefit payment as either a super income stream or a lump sum. The non-dependents of the deceased can only be paid in a lump sum. The form of the death benefit payment (and who receives it) will depend on the governing rules of your fund and the relevant requirements of the Superannuation Industry (Supervision) Regulations 1994 (SISR).

If succession planning around who the superannuation is to be left to is in place by the deceased, those who may be classed as dependents and non-dependents can become legally blurred.

In any event, dependents are defined differently depending on what kind of law they are being examined under (superannuation law and taxation law).

Under superannuation law, a death benefits dependant includes:
• The deceased spouse or de facto spouse
• A child of the deceased (any age)
• A person in an interdependency relationship with the deceased (involved in a close relationship between two people who live together, where one or both provides for the financial, domestic, and personal support of the other).

Under taxation law, a death benefits dependant includes:
• the deceased’s spouse or de facto spouse
• the deceased’s former spouse or de facto spouse
• a child of the deceased under 18 years old
• a person financially dependent on the deceased
• a person in an interdependency relationship with the deceased

Depending on the type of law that the beneficiary is classified under affects how they can interact with the death benefits.

How Do I Make Sure My Beneficiaries Will Receive The Death Benefits That I Want Them To Have?

Death benefit payments need to be nominated by the holder of the superfund, as superannuation is not automatically included in your will. If you fail to make a nomination, your super fund may decide who receives your super money regardless of who is in your will.

That’s why succession planning is important when it comes to death benefits, no matter the situation. Even if you are at your healthiest, you’ll want to be prepared for any eventuality.

To get your succession planning right, here are 5 tips that will help you during the process.
Locate and/or consolidate your superannuation funds – if you do not consolidate your funds, ensure that there is a binding death benefit nomination (BDBN) in place for each fund.
Prepare a BDBN – this is a notice given by you as a member of a superannuation fund to the trustee of your superfund, nominating your beneficiaries on your death and how you wish for the death benefits to be paid.
Seek advice before making changes to your level or type of insurance cover – you may be compelled to disclose medical conditions which may impact your ability to obtain cover or impact the cost of your cover if you remove or change your insurance cover.
Review your binding death benefit nomination (BDBN) each year during tax time
Seek advice on a superannuation clause under your will – though superannuation is not an estate asset, the death benefit may be paid to the estate under certain conditions, which you should consult with a super professional about.

What Do You Need To Know To Get Out Of An SMSF?

If you’re a trustee of a self-managed super fund, some reasons or circumstances could have emerged that may result in you wanting to get out of that fund.

These may be personal circumstances (such as a divorce or another trustee dying), financial reasons (investments not performing as they should or you aren’t taking a pension after retiring) or you simply may not have the time to manage it efficiently anymore.

Whatever the reason, getting out of a self-managed super fund is no easy task. An SMSF cannot simply be placed ‘on hold’ as it were, as an SMSF must be completely closed down (unless members are remaining). You cannot simply take your funds out of the SMSF, especially if it is in the name of multiple trustees.

Getting out of your SMSF can be a complex process, with a lot of paperwork and responsibilities you must ensure are met. Failing to meet those responsibilities as a trustee, even when winding up your SMSF, could lead to financial and legal ramifications (such as penalties and fines).

Though some of the steps for winding up an SMSF might be self-explanatory, ensure you cover your bases by ensuring that the following steps are followed.

Consent Of Trustees Must Be Obtained

As with most decisions that are to do with an SMSF, consent from the trustees of the fund must be obtained in writing at a trustee meeting. A resolution that the SMSF is to be wound up is to be made and all trustees need to agree to it. This must be minuted and signed by all trustees.

After this consent is obtained, the Australian Taxation Office (ATO) must then be notified of the fund being wound up within 28 days of the decision being made.

Check Your Trust Deed

This may contain instructions or information pertaining to how your SMSF needs to be wound up and the specific steps that need to be taken. Work Out What Will Happen To Member

Benefits

An SMSF can only be closed when there are no funds available, so any existing monies within the account need to be paid out to members who are able to access their super (if they have met a condition of release) or rolled over to another super fund. You also need to take into consideration events that may affect other members’ transfer balance accounts (which may need to be reported by the SMSF).

Paying Out The Fund to members

If members are still in the accumulation phase, they need to rollover their funds into another super fund. This can be any kind of super fund – such as industry and retail funds – and doesn’t need to be another SMSF. You also need to take into account if any of the assets within the SMSF will incur Capital Gains Tax if they are sold to fund member benefits payouts.

Appoint An Auditor

Appoint an auditor to complete a final audit of the SMSF before you lodge your final tax return. They must be ASIC approved. The audit will help you to finalise the tax obligations of the fund, including CGT and taxable income received by the fund through investment returns or member contributions.

The ATO will then examine the audited accounts and determine whether there are any final tax obligations or refunds due. Any final tax owed can then be paid from funds remaining in the SMSF’s accounts.

Approval By The ATO For The Fund To Close

Finally, the ATO will send you a letter stating that your SMSF’s ABN has been cancelled and your SMSF’s record has been closed on the ATO’s system. This letter is, in effect, confirming that you have met all reporting and tax responsibilities and you can now close the fund’s bank accounts.

Closing an SMSF is a complex task and you should not attempt to do it on your own. Please reach out to a licensed adviser if this is something you are contemplating.

What’s Happening To Super With Balances of Over $3 Million?

Last week, the government announced a change to superannuation, introducing a new tax that will apply to member balances above $3 million.

From July 1, 2025, super earnings over $3 million will be taxed at 30 per cent, double the current rate of 15 per cent. According to the government, this change aims to ensure that sustainability and fairness remain central to the system.

To put it into perspective, the average Australian super fund contains an average balance of $150,000, and about two-thirds of Australians have less than $100,000.

This new tax concession increase will affect about 80,000 people, who will continue to have more generous tax breaks on earnings from the $3 million below the threshold (which will not rise over time). This will not be retrospectively applied and will only apply to future earnings.

A person with $3 million in super will likely receive a tax benefit at 30% still. However, serious thought could be given to leaving money in superannuation, where the tax rate is the same as putting it into a company.

Other considerations that may need to be thought through include

• If you die and leave that super to non-death benefits dependent, they will pay 15% on the entire taxable component, leading to an effective tax rate of 45% on the earnings.
• Taking money out of the company will come with franking credits but may put you in a position of paying top-up tax. Conversely, leaving it in the company and leaving the shares to a testamentary trust may allow you to pay dividends without further tax.
• A company does not need to comply with any SIS rules so that you can have in-house assets, loans to members etc.

Any actions taken should be done with consultation with a professional adviser to comply with legislation and regulations.

As these changes to super balances of over $3 million will not take effect until after the next election, there is plenty of time to plan and model out the best path for your situation (if you are one of the few who this will affect). You will need an actuarial certificate to determine what percentage of the fund’s income will be taxed at 0%, 15% and 30%.

While the average Australian super fund may be far below this threshold, that doesn’t mean a fund cannot be increased. Through voluntary contributions, including concessional and non-concessional contributions, you can help to boost your nest egg to a comfortable level.

Do you want to know more about tax breaks, concessions, or ways you could contribute to your superannuation? Speaking with a licensed professional is the best way to start.

Super Fund Fees – Are Yours High, Medium Or Low?

No matter the kind of super fund you opt for, or how it has been performing, you will be subject to super fees. Understanding how these fees work and the difference they can make to your nest egg is vital.

When it comes to super fund fees, there are two factors you need to get your head around; the kinds of fees you are being charged and the rate of fees you pay. Opting for a super fund based on these two factors can see you retire with hundreds of thousands more money.

You should be aware of the various types of fees you are being charged. If you would like to find out the fees you are being charged, you should do two things.

Firstly, Google your fund’s product disclosure statement and scroll through to the fees section. You should see a list of different types of fees, explaining what they are, how they are applied, and how often they will be incurred. Secondly, you should log in to your super fund account and note all the fees being charged to you. Investigate how closely these correspond and correlate with the product disclosure statement.

If you feel there are discrepancies, do not hesitate to contact your super fund or financial advisor and ask for clarification. It is worthwhile researching and comparing the fees you are being charged against other super funds and what they charge.

Being complacent and not paying attention to your super is extremely irresponsible; the dividends you will receive later in life for being diligent now outweigh the burden of taking time to be informed today.

Some standard fees across the board include:

– Administration fees: fees covering the costs of operating and managing your super fund account.

– Exit fees: fees incurred for leaving or switching super funds. While this is a common fee, not all funds charge it.

– Investment fees: fees incurred due to the cost of managing where your money is invested. These fees can fluctuate, depending on where your money is invested.

– Activity-based fees: fees incurred for any activity you require your super fund to perform outside of the ordinary management of your account, such as a family law split fee.

Another major factor contributing to how much you accumulate in your super account throughout your working life is the rate of fees you pay. Plain and simple, some funds offer much lower fees than others, creating a difference of hundreds of thousands of dollars when it comes time to retire.

Generally, funds are categorised into three groups; low super fees, medium super fees and high super fees. You will need to weigh up your options and decide whether you want a fund that charges low, medium or high super fees. While it seems like the best option to choose a fund with low super fees, these funds do not necessarily perform as well as medium or high-fee super funds, meaning you will not get as good of a return on your investment.

Strategising Your Risk Levels Of Super Fund Investments Could Pay Off In The Long Run

When it comes to investing, there is always a certain amount of risk involved. The key to a great investment strategy is to discern how much risk you are willing to take.

The risk profile of your superannuation investment strategy should be determined by combining your financial goals and the time frame in which you want to achieve them.

As you get closer to retirement, you may care to reduce the risk profile of your investments.
Younger people, for example, are better positioned to deal with market fluctuations because they have more time to compensate for losses.

The returns you receive on investments are based on the income those investments can generate and the capital growth that the investments will experience. Investments can be broadly categorised into defensive and growth assets.

Growth assets typically have a better potential for high returns but carry short-term risks. Shares and property are examples of growth assets. Defensive assets, such as cash and term deposits, generally have a very low level of associated risk but will also yield lower returns.

By diversifying your superannuation investments between growth and defensive assets, you can fine-tune your portfolio to suit your circumstances.

Individuals running a self-managed superannuation fund should already have a robust understanding of their risk profile. However, if you are a member of a public fund, it can still be possible to retain a high degree of control over your risk profile.

Some public funds offer broad investment categories that you can select (usually between five and ten). Others offer members a much higher degree of control over their portfolios, even going so far as to allow you to select specific companies to buy shares from.

Individuals interested in gaining a higher degree of control over their superannuation risk profile may wish to look at joining one of these more precise funds.

However, the downside is that these funds usually have much higher fees, potentially eroding the benefits of more control. Involved investors with an active interest in determining their risk profile may wish to investigate self-managed superannuation.

Before making any major decisions, consulting with a professional is advised.

Deciding Between Corporate Versus Individual Trustees For An SMSF

If you have a Self Managed Superannuation Fund (SMSF), the Fund is considered to be a trust and must have a trustee. There are two options as to who this trustee can be.

Barring a few exceptions, it can be the members individually, or it alternatively can be a company with the members as the directors and shareholders of the company. The choice, either way, is that the trustee of an SMSF can be either an individual trustee or a company as a trustee.

When choosing the appropriate trustee structure for your SMSF, a closer examination of the advantages and disadvantages will assist you in determining what is right for your needs.

The Cost

When looking specifically at the cost, a company as a trustee could initially cost around $1,000 or more to establish. An annual fee of roughly $50 will also need to be paid to ASIC, and when you are finished with the company, there will be costs associated with deregistering it. Using individual trustees, there is no initial cost associated.

Asset Separation

Most importantly, you have asset separation. The assets are held in the name of a separate entity; if the individuals are ever attacked financially, there is nothing to point toward the super fund. Even though the fund’s assets should be protected even with individual trustees, if assets are in the individual names, you will need to spend legal fees to prove they are fund assets.

If the fund members are changed, you will need to change the trustees, and if you change the trustees, you need to change the ownership of all the assets. This will be a major administrative burden, as a lawyer will need to be engaged to do the necessary documentation to change the trustees, and is required to be engaged if real estate is involved. In most instances, simply changing trustees and ownership of the assets will cost far more in the long run than the initial investment costs of setting up a corporate trustee.

Compliance Concerns

People always make mistakes, but with SMSFs, mistakes can create breaches of the law. If you have all of the assets in a special purpose company name, there is less chance that you will make the mistake of thinking that a particular fund asset (such as a bank account) will be your own asset. If you take money from the super fund account by mistake, thinking it is your own money, the auditor may report a breach.

If you deposit money into your SMSF account, which is yours and not the fund’s, you may not be able to take that money back if the mistake isn’t realised in time. While price-wise, individual trustees may seem advantageous at first glance, companies as trustees possess more benefits over individual trustees.

Do you already own a company, and after reading this article, asking yourself if you can use that to set up a corporate trustee? It is only recommended that you do so if the company is not operating in any other capacity, but yes, doing so can save on the initial set-up costs.

There is no one size fits all advice we can give you, but we can try to determine what would best suit your needs. We may sit down with you and agree that individual trustees may be appropriate, but if our recommendation is for a corporate trustee, it is for sound financial reasoning.

The Benefits & The Downsides Of SMSF Set Up

One of the benefits of establishing or opting for an SMSF is the control they are given over where the money is invested. While this sounds enticing, the downside is that they involve a lot more time and effort as all investment is managed by the members/trustees. They are also often the targets of fraud and scams.

Firstly, SMSFs require a lot of ongoing investment of time:
Aside from the initial setup, members need to continually research potential investments.
It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par.
Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, is a lot more time occupying.

Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fees, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.

Thirdly, investing in an SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market so that they can build and manage a diversified portfolio.

Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations requires a basic level of understanding at the very least.

Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge.

Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund.

SMSF Fraud Alert

The ATO is also warning of an increase in Self Managed Super Fund identity fraud and scams targeting the retirement savings of individuals. This is something to be aware of if looking to start an SMSF and maintain it.

These fraudulent perpetrators use stolen identity information or may harvest information from individuals by cold calling the victim and presenting themselves as superannuation experts.

They typically offer superannuation comparisons and/or high-return investment options through the establishment of a fraudulent SMSF. Remain vigilant, and remember that if you are dealing with an advisor for the benefit of your SMSF, you should check to see if the advisor is listed on ASIC’s Professional registers or Moneysmart’s list of unlicensed companies you should not deal with.