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Smarter SMSF investing pure and simple
What you get when you trade your SMSF with Bell DIrect:
- A trading platform awarded No. 1 by investors – most reliable website (Investment Trends Online Broking Survey 2014)
- Trades from $15 (or less if you trade frequently)
- Bell Potter’s Bell Cash Trust linked to your trading account, with no fees, charges or minimum balance
- Bell Potter research
- A daily trading ideas newsletter
- Portfolio tools like Strategy Builder and Technical Insights, so you can set up your portfolio strategy and spot opportunities
- The best tax reporting in the market – number 1 (Investment Trends Online Broking Survey 2014)
- Invest in warrants, exchange traded funds (ETF's), exchange traded government bonds and in managed funds via mFund. Log in to view our SMSF Portfolio tools
An SMSF is simply a private super fund run by its members. It allows you to take direct control of your super investments, rather than entrusting them to a professional fund manager.
Its purpose is to help you and the other fund members save for retirement, then provide an income for you when you retire.
Because an SMSF is a super fund, it is governed by Australia's super laws, which set out strict compliance and reporting requirements. Those laws also affect the contributions your fund can accept, the kinds of investments you can make, the paperwork you need to keep, and the way you can access your money. Since it is structured as a trust, each fund also has a trust deed that sets out the rules for your individual fund.
An SMSF can have up to four members, and many SMSFs are run jointly by husbands, wives and other family members. But you can also use an SMSF solely for yourself, especially if you have a large amount of super to invest.
Each SMSF is run by one or more trustees. You can choose between:
- Individual trustees. If you choose this option, all fund members will be trustees, and all trustees will be fund members. As each fund must have at least two individual trustees, this option is not suitable for single member funds.
- Company trustee. With this option, you appoint a company as trustee, with one or more fund members acting as directors of the company. This structure is often used for single-member funds or funds where a member can't act as trustee — because they are an overseas resident, for example. It may also be useful for estate planning. However, it does involve extra costs for the set up and administration of the company.
As well as a fund Trust Deed, an SMSF has its own Tax File Number (TFN), Australian Business Number (ABN) and bank account. The members make superannuation contributions to that account, which the trustees then invest on their behalf, following the fund's documented investment strategy.
Each investment decision needs to be carefully recorded, and there are other reporting and administrative obligations, with penalties for non-compliance. Among other requirements, you need to lodge an annual tax return for your fund and arrange for an annual audit of its financial statements by an approved auditor.
That means you need the time and experience to stay on top of your legislative and reporting obligations — or expert support from a professional administrator.
Each year, more Australians are taking control of their superannuation savings by opening an SMSF. But that doesn't mean an SMSF is right for everyone.
As an SMSF trustee, you need to take full responsibility for managing your fund's investments. You also need to create and update a written investment strategy, document investment decisions, keep up to date with legislative changes, and regularly complete large amounts of paperwork.
And while an SMSF can be a highly cost-effective choice for investors with larger super balances, it can be expensive for those with less to invest. That means SMSFs are generally only suitable for active investors who have the time and experience to manage their own investments.
And if you decide to open an SMSF, we can support you with every aspect of setting up and running your new fund — creating a trust deed and investment strategy, applying for an ABN and TFN, and completing all of the regulatory documentation required for full compliance with Australia's complex super laws.
- Direct control of your super. You decide what to invest in, when to buy, when to hold and when to sell.
- A wider choice of investments. By investing through an SMSF, you can access a wider range of investment options than a traditional super fund, including direct shares and property.
- More flexibility. Because you make the decisions, you have the flexibility to design an SMSF strategy that complements your other investments, changing your strategy when new opportunities arise or when your situation changes.
- Potential tax benefits. Super can offer significant tax benefits compared to non-super investments, allowing you to potentially take advantage of more tax-efficient investment strategies.
- Potential cost savings. Provided you have a larger amount of super to invest (typically $200,000 or more), an SMSF could help you save on fees, leaving you with more money to invest.
(APRA, Quarterly Superannuation Performance, March 2013)
As an SMSF trustee, you're responsible for every aspect of the fund and its performance, including:
- Ongoing compliance, administration and decision making.
- Staying up to date with SMSF legislation and regulatory requirements.
- Achieving an investment return sufficient to help your members meet their retirement goals.
Super legislation also sets out strict rules for carrying out your obligations as a trustee. As a trustee, you're required to:
- Act honestly in all matters regarding the fund.
- Display a high degree of care, skill and diligence.
- Act in the best interests of all beneficiaries.
- Keep the money and assets of fund separate from other money and assets.
- Retain control over fund
- Develop and successfully implement an investment strategy.
- Allow members access to necessary information.
- Behave appropriately and in a manner which does not hinder trustees from perform or utilising their functions or powers.
To stay compliant with super laws, your fund needs to meet a range of tests and ongoing administrative requirements. Here are some of the most important.
Sole purpose test
Your SMSF's investments must have one purpose and one purpose only: to provide benefits to members upon their retirement (or death benefits, if they die before all of their super has been paid out).
Related party transactions
SMSF funds must not transact with other members, relatives or entities of the fund. There is a limited exception to this rule for SMSFs investing in commercial properties owned by a related party such as a business. But this is a complex area, so professional advice is essential.
In house assets
An in house asset is a loan, investment or lease involving a related party. SMSFs are restricted from lending to or investing more than 5% of the fund's total asset in an in-house asset. (Again, there are exceptions for business property investments.)
Arm's length transactions
All of the fund's transactions must be carried out at arm's length, with all investments made on a strict commercial basis, reflecting the true market value of each asset.
Borrowings and security
While SMSFs can borrow to invest, there are strict rules about the kinds of loans they can use. Generally, SMSFs can only use limited resource loans secured by individual assets, such as investment properties, so that the lender has no claim over the wider assets of the fund. Again, it's important to seek professional advice before you borrow.
As a fund trustee, you must prepare and implement a written investment strategy for your fund. All of your fund's investments must comply with your strategy, and your strategy must be reviewed regularly to make sure it continues to meet members' needs.
Like other super funds, SMSFs can offer significant tax advantages compared to non-super investments.
Here's a brief summary of some of the potential benefits:
- Concessional super contributions, such as super guarantee contributions, are taxed at just 15%.
- Your SMSF's investment income is generally taxed at a maximum rate of 15%, while capital gains are taxed at a maximum of 10% where assets have been held for 12 months or more.
- Once you have retired and started receiving a superannuation pension, you will generally pay no tax on your pension account. That means you will pay no tax on your investment income or capital gains, and no tax on your pension payments. If your pension account has invested in direct shares, you may even receive a tax refund for franking credits.
But remember — tax laws are complex and everyone's situation is different. So it's important to consult your tax adviser before you invest.