SMSF - Frequently Asked Questions

We've put together a list of some of the most frequently asked questions we hear about SMSFs, and basic responses for your guidance. Please note this area is generic in nature and does not take into account your personal circumstances or needs.

What is superannuation?

Many people incorrectly consider superannuation to be an investment in its own right. You cannot invest in superannuation like you can with shares, property or term deposits.

A superannuation fund is a special type of trust, with concessional taxation treatment, through which you can invest for your retirement in shares, property, term deposits and a range of other assets.

What is a self-managed superannuation fund, or SMSF?

A self-managed superannuation fund (SMSF) is a superannuation fund controlled and operated by the members, with or without assistance from professional advisors. Each member of the fund must be a trustee of the fund, or be a director of a corporate trustee.

How many members can my SMSF have?

A self-managed superannuation fund is permitted to have up to four members at any time.  Unless they are related, members cannot be in an employment relationship with each other.

Why choose an SMSF?

Some of the reasons people choose to run a SMSF include:
  • the ability to have more control of investments;
  • increased investment options;
  • cost efficiencies;
  • taxation advantages;
  • investing in residential real estate;
  • buying your business premises;
  • dissatisfaction with returns from their retail or industry fund;
  • special needs in respect of superannuation estate planning;
  • dependants with special needs;
  • Inter-generational business transitioning.
Operating your own super fund is a big decision, and we always recommend you seek professional financial advice before you make that decision.

Will an SMSF suit me?

While I'm a self-confessed fan of SMSFs, I recognise that they do not necessarily suit everyone. SMSFs may not be suitable for people:
  • with low balances, unless the intention is to borrow to invest in property;
  • with little desire to have input into investment selection (we can provide assistance in this area);
  • with addictions (drug, alcohol or gambling), as these may cause fund or superannuation rules to be breached;
  • with poor record keeping, (although we could assist in this area).
Special care also needs to be taken when SMSFs are established for members of blended families.

We are happy to discuss your needs and circumstances to assist you decide whether an SMSF is suitable for you.

How long does it take to establish an SMSF?

Once you have decided on a name for your fund and your corporate trustee, and have provided us with relevant information about the fund members, we can arrange for a specialist law firm to prepare the necessary fund documents and have them available for execution within a few hours. The SMSF comes into existence upon signing of the necessary documents, and making the first contribution or rollover into the fund. Contributions can be made as soon as a bank account is established for the fund, however withdrawals cannot be made from the bank account until the fund is granted an Australian Business Number (ABN) by the Australian Taxation Office. Rollovers cannot be made until approval is granted by the ATO – this could take between 1 and 4 weeks.

How do I transfer my benefits from other superannuation funds, and how long does it take?

Your benefits can be transferred from other superannuation funds through a process known as a rollover. This requires completion of the necessary documents to enable both the transferor and transferee funds to correctly advise details of the rollover to the ATO. The transferor fund is not permitted to commence the rollover process until the SMSF has been granted an Australian Business Number (ABN) by the Australian Taxation Office, which can take up to 28 days from initial registration of the SMSF with the ATO.

What does it cost to establish an SMSF?

You should budget around $2,500 to establish a self-managed superannuation fund. This would include establishment of the corporate trustee, legal fees for the fund governing rules (trust deed) and the trustee constitution, all trustee and member documents, registrations with the ATO, establishment of a cash management account and a share trading account. If you're setting up the super fund to buy property using a Limited Recourse Borrowing Arrangement you need to allow more to cover the separate trustee and trust structure (please call us to discuss).

What does it cost each year to run an SMSF?

As an SMSF is a trustee controlled entity, the annual cost to operate will depend on the way the fund is operated, the investments chosen by the trustees, and other factors individual to each fund. As such there is no single answer to this question. The more active your fund, the larger the diversity of investments, the more complex the investments, and the more assistance you require in running the fund, the higher the costs.

All funds will be required to pay an ATO supervisory levy, have an accountant prepare financial statements and the fund annual return, and have an audit undertaken each year. Some funds will also be required to pay for an actuarial certificate, and some trustees will engage a financial advisor to assist them while others will not.

As a minimum, you should expect costs of at least $2,500 per year. For larger funds without financial advice but with a diversity of investments the costs could be in the order of $4,000, funds which actively trade and invest in derivatives may incur costs of around $6,000 a year, and funds with a diverse range of investments, currency exposures, pension and full financial advice could incur costs of around $10,000 a year.

At Excel Financial advisors we are prepared to work with you to develop an agreed scope of work to be provided, and will give you a fixed price in advance for that scope of work.

Will an SMSF allow me to access funds sooner?

A SMSF is not a way of getting access to your superannuation benefits early. The same restrictions apply to accessing your benefits from a SMSF as apply to any other complying fund under the Australian superannuation system. If anyone offers you the ability to take funds out of your superannuation early by using an SMSF, generally in exchange for a hefty fee, it is likely to be a fraudulent early release scheme and should be reported to the ATO.

Can I use assets owned by my SMSF?

SMSFs must be operated for the sole purpose of providing retirement benefits for a member or benefits to member's dependants in the event of the member's death. Limited exceptions apply, including the ability of a member or related entity to lease business real property on commercial terms from an SMSF.

Can I borrow money from my SMSF?

SMSFs are prohibited from lending to, or providing assistance to, members or relatives of members. It is possible to lend up to 5% of the fund's assets to a company controlled by the members, however a number of conditions apply and specialist guidance should be assisted if you are thinking of doing this.

Should I close my industry or retail fund?

If you do decide to invest your superannuation benefits through a SMSF, it does not mean you should automatically close your retail or industry fund - they may still form an important part in your overall retirement savings plans.

There are often compelling reasons why it is better to keep a part of your superannuation benefits in a separate fund. I personally have both a SMSF and a retail fund. Each fund plays its own special role in my retirement funding plans.

Can my SMSF borrow?

Borrowings in an SMSF are prohibited, except under very limited circumstances. One of these is for the purpose of acquiring a single investment asset (such as a property) under a limited recourse borrowing arrangement (LRBA). This is a complex structure in which the asset is held under a separate trust, with the SMSF having a beneficial ownership in the asset upon payment of an initial deposit and acquiring full legal ownership upon repayment of the loan.

An LRBA is a complex arrangement which should not be entered into without specialist professional assistance.

Can I continue to operate a SMSF from overseas?

An SMSF must be managed from Australia, however temporary absences (up to 2 years at a time) are permitted. An SMSF can continue for absences beyond this time-frame, however all major decisions must be made by a person or persons in Australia operating as replacement trustees under an enduring power of attorney from the members.