Self Managed Super Fund Accountants (SMSF)

A SMSF is a private superannuation fund, regulated by the Australian Taxation Office (ATO) that you manage yourself. SMSFs can have up to four members. All members must be trustees (or directors, if there is a corporate trustee) and are responsible for decisions made about the fund and compliance with relevant laws. Set up costs and annual running expenses can be high, so it's most cost-effective if you have a large balance.

An SMSF is a legal tax structure whose sole purpose is to provide for your retirement. SMSFs operate under similar rules and restrictions as ordinary super funds.

When you run your own SMSF you must:

• carry out the role of trustee or director, which imposes important legal obligations on you
• set and follow an investment strategy that is appropriate for your risk tolerance and is likely to meet your retirement needs
• have the financial experience and skills 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
• use the money only to provide retirement benefits.

In June 2018, ASIC released its findings from a review of the SMSF sector. The review found that around 90% of financial advice about setting up an SMSF did not comply with relevant laws. Other findings included that, among SMSF trustees:

• 38% said running their SMSF was more time-consuming than expected
• 32% said the set-up and running costs were more than they expected
• 29% incorrectly thought they were entitled to compensation for theft and fraud involving their SMSF.

Running your own super fund is a major commitment. Before setting up an SMSF, ask yourself:

Have you considered other do-it-yourself (DIY) super options?

Many professionally managed super funds have DIY investment options which let you choose specific assets, such as shares, exchange traded funds and term deposits. This gives you some control over your investments without the legal and administrative responsibilities of running an SMSF.

Have you considered other super funds or investment options?

If you're thinking about setting up an SMSF because you're not happy with your current fund or the way your money is invested, consider changing to another fund or investment option first. See choosing a super fund.

Will your self-managed fund outperform your current fund?

Super funds use highly skilled professionals to invest your money. Will the investments you choose perform better than your professionally managed super fund? Are you confident you can accurately measure returns?

Have you considered the costs?

Like all super funds, SMSFs have costs associated with running the fund, including investing, accounting and auditing. If these costs are high they could have a significant impact on your retirement lifestyle.

Having access to a broader range of investments is a common reason for starting an SMSF. Through a self-managed super fund, you can not only invest in shares, term deposits, managed funds and property, you can also hold alternative assets, such as antiques and artwork.

Shares

You may want to set up an SMSF so you can choose your own shares. But, unless you have a lot of money to invest, you are unlikely to be as diversified as a fund manager, who has the advantage of using pooled funds to buy a broad range of shares.

Some APRA-regulated funds now allow you to choose your own shares.

Property

Some people use their SMSF to invest in property. For information on the rules of property investment within super and the costs involved, go to our SMSFs and property webpage.

Collectibles

SMSFs can hold collectibles such as artwork, jewellery, antiques, coins, stamps, vintage cars and wine; however, there are very strict rules around holding these assets in your SMSF.

The assets must be insured and they cannot provide a present‑day benefit. This means that artwork cannot be displayed in your home or business, you cannot drive the vintage car, you cannot wear the jewellery or drink the wine.

For more information, see the ATOs webpage on collectibles and personal use assets.

Cryptocurrencies

Some SMSF trustees have taken an interest in investing in cryptocurrencies such as Bitcoin, Ethereum, Litecoin and Ripple. While SMSFs are not prohibited from investing in cryptocurrencies, as a trustee, you need to consider:

• the nature of cryptocurrencies - For a detailed explanation on what they are and how they work, see our webpage on cryptocurrencies
• cryptocurrency risks - Cryptocurrencies carry additional risks, including fewer safeguards, values that can fluctuate significantly over a short period of time and the risk that your money could be stolen with little or no recourse
• SMSF regulatory requirements - There are superannuation regulatory requirements that apply to investments made by your SMSF. For more information about SMSFs investing in cryptocurrencies, visit the ATO website.

Be wary of services offering to establish an SMSF for you in order to gain exposure to cryptocurrencies. Not only does operating an SMSF involve significant time, skills and responsibility, you may also be putting your retirement savings at risk.

You should seek independent advice from a licensed financial adviser before undertaking any new type of investment in your fund.

How SMSF trustees invest

SMSF trustees prefer different assets from those of APRA-regulated super funds, which may impact returns. SMSFs tend to invest more in cash, property and alternative assets while APRA-regulated funds are usually better diversified.

By law, if you or another trustee of your self-managed super fund becomes bankrupt, that person can no longer remain a trustee, director or member of the super fund. SMSFs have a 6-month grace period to remove the bankrupt trustee and make arrangements to deal with their super assets.

If you are the only member of your SMSF, a new director will need to be appointed to manage the fund on your behalf while you are disqualified.

Seek legal advice about the actions you need to take to deal with bankruptcy and your SMSF.

One of the best resources in understanding more about superannuation and self managed super funds in particular is the money smart government site article on self managed super funds.