What you need to know before setting up a self-managed super fund

A self-managed superannuation fund (also known as an SMSF) can be a great way to take control of the dollars you’re saving for retirement by putting you in the driver’s seat when it comes to all decisions – investments, insurances, management – in relation to your fund. For some this can be a brilliant decision, for others it can be less than ideal. While you shouldn’t be scared out of choosing a SMSF as your preferred retirement vehicle, it is always best to be aware of the potential negatives upfront.

Here are five essential tips if you’re considering setting up your very own self-managed superannuation fund.

1. Plan for fees

Setting up and running a SMSF costs money and like most things in life you get what you pay for. Initial start-up fees can vary between $500 and skys-the-limit, but expect to pay around $2,000 if you’re getting a company to act as trustee. Ongoing accounting and audit fees will vary, but for a basic fund expect to pay $3,000 as a starting point. For some people these costs are just part of doing business and they are happy to pay for the control they get, for others they are simply a cost to be resented. What would they be for you?

2. Know your responsibilities

Ensure you have the time to manage your fund properly! Trustees are responsible for making investment decisions in accordance with the agreed-upon investment strategy. Among the myriad other responsibilities the trustees have, one is ensuring the fund is run in compliance with large amounts of legislation in place. SMSF is a highly technical area of tax law and as the trustee you’re expected to stay on top of things.

3. Manage your records closely

Recordkeeping must be kept up-to-date and immaculate. There are loads of rules when it comes to SMSF and recordkeeping is definitely one of them. Auditors will require documentation to back up every transaction undertaken by the fund so you’ll need to keep tidy and complete records. Financial statements, tax returns and any other document that need lodging with the ATO must be kept for five years. Minutes of meetings, trustee declarations etc must be kept for 10 years.

4. Know the rules around related party transactions

Know your related party transactions! There are rules around how a SMSF can deal with related parties – most either rule them out altogether or require the dealing be at arm’s length or on a commercial basis. A popular example is when a SMSF owns a commercial property and leases it to a member’s business in which case there must be a proper lease in place and rent needs to be paid at market value – just the same if an unrelated party was renting the property. Members and their associates cannot borrow money from the super fund. Super funds also cannot acquire assets from members, however there are two notable exceptions – those being business real property and listed securities. Either of these must be acquired at market value and on an arm’s length basis.

5. Does your fund pass the sole purpose test?

You need to ensure your super fund meets the “sole purpose test”. This states that SMSF funds are maintained for the sole purpose of providing retirement benefits to members, or their dependents. This means there are restrictions and rules as to what a SMSF can invest in. For example, if investing in collectibles such as artwork the SMSF members cannot have access to this – that means no hanging the piece in the living room for all to enjoy pre-retirement!

As you can see, while they are great for some, many of us are simply not cut out to manage a SMSF and should steer clear. If you would like to have a bit of control over your investments without having the complete responsibility that comes with a SMSF you could try one of the various managed funds that let you choose the way the money is invested, some will even let you buy and sell certain shares and other financial assets via an online trading platform. Whatever you choose, make sure you’re informed!

Written by Ben Fletcher, managing director at Generate. 


Generate are not your typical accountants. We provide operational and strategic support to creative and innovative businesses of all stripes and colours. 

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