Peter Lewis & Associates Pty Ltd - Chartered Accountants

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Self Managed Superannuation Funds

As the Government encourages Australians to take responsibility for and reach their financial retirement goals, citizens are repeatedly required to deal with Superannuation funds.

Self-managed Superannuation is a means of saving for retirement. It allows you to control your investment strategy, reduce tax while obtaining tax benefits, and control administration costs.

Superannuation law is a delicate area and personalised planning is required for each individual. At Peter Lewis & Associates Pty Ltd we are superannuation experts, and can assist in the taxation aspects of establishing a superannuation fund that will effectively allow you to reach your financial retirement goals.

Before making any investment decisions you should seek advice from a licensed financial planner.

Services we offer include:

• Establishment of Self Managed Superannuation Funds
• Completion of Statutory Information
• Superannuation Audits
• Advice concerning Compliance Matters
• Advice concerning Taxation Benefits
• Advice on Employer obligations
• Advice on Pensions

ALL ABOUT SELF MANAGED SUPERANNUATION FUNDS

Is an SMSF right for you?
Managing your own superannuation may not suit everyone – but if you’re one of an increasing number of Australians wanting to take control of your retirement planning, a self managed superannuation fund (SMSF) may just be the answer.

With added control, flexibility and potential cost savings, SMSFs provide a number of advantages over other superannuation funds.

Benefits
Acknowledged as one of the most tax effective structures for wealth creation, SMSFs offer a number of key benefits, including:-

• Control
  SMSFs allow you to exercise a high level of control over fund issues such as, the fund membership, the structure of the portfolio and the timing of investments. Because of this they are generally suited to people who like to invest directly and make their own decisions about when and where to invest. You may seek guidance from investment professionals from time to time, but the ultimate decision is your own.

• Flexibility
  As a trustee of an SMSF you are able to consider a greater range of investment opportunities which are unique to SMSFs. These investments may include assets that are connected to your business, such as commercial property.
  It may also be possible to make contributions to the fund by transferring certain personal investments to the fund. There are restrictions on the types of investments that can be transferred but managed investments and direct listed shares can generally be transferred without limitation.

• Tax Savings
  An SMSF can be used to accumulate assets during your working life and to provide income during retirement. This places you in an excellent position to plan the buying and selling of fund investments for maximum tax efficiency. When you retire and commence an income stream there is no need for the fund to automatically sell down investments to fund you pension payments. Investments can be retained in the fund and sold in a more tax effective environment.

• Cost
  Most fees and charges of a SMSF are fixed costs. This means the cost can be the same for a fund with $100,000 as it can be for a fund with $1 million. Therefore, as the fund balance grows over time in a SMSF the cost running the fund decreases as a percentage of the fun balance.
  The cost savings from administering the fund yourself are largely dependent on the level of assets in your fund, the fees and charges of carious services and how much of the administration you can do yourself. When trying to quantify the cost savings of an SMSF compared with other types of superannuation funds, don’t forget to factor in the amount of work involved and the time devoted to running the SMSF.  

What is an SMSF?
An SMSF, in simple terms, is a small superannuation fund established for 1 to 4 members. The members can be individual, families and business partners that want to grow and manage their future wealth by creating their own super fund.

The key things to remember are:-

• The money in an SMSF is held in trust for the members of the fund (you)
• An SMSF and its assets are controlled by trustees (you)
• The fund must be run in accordance with the superannuation legislation
• The fund receives contributions and rollovers and trustees (you) decide how the money is invested
• When a trustee (such as yourself) is allowed to access their super, the trustees (you) pay this money as a lump sum or as a pension.

Who can be a trustee?
Any person over the age of 18 can be a trustee of a SMSF provided they are not a disqualified person or under a legal disability.

You cannot be a trustee of a fund if you:

• Are insolvent (i.e. bankrupt)
• Have been convicted of an offence involving dishonest conduct (against the Commonwealth, State, Territory or foreign county)
• Have a civil order made against you.

Who are the members?
Members of an SMSF are also the trustees of the fund, so they control how contributions are invested and how benefit are paid, subject to regulatory controls. SMSFs must comply with the following restrictions:-

• Must have no more than four members
• Every member must be a trustee of the fund or a director f the corporate trustee
• No member of the fund can be an employee of another member of the fund, unless the members concerned are relatives, and
• Trustees of the fun must not receive any remuneration of their services as trustee.

Special rules apply for single-member funds which may allow a non-member to act as trustee or director of the corporate trustee.

Who regulated SMSFs?
As trustees of the fund, members of an SMSF maintain complete control over the investments of the fund and the provision of benefits as well as being responsible for the ongoing compliance of the fund. The governing legislation for SMSFs is the Superannuation Industry (Supervision) Act 1993 (SIS), known as the SIS Act.

The Australian Taxation Office (ATO) regulates SMSFs via the SIS Act and offers extensive advice on whether this approach will work for you. The ATO has the right to audit SMSFs for tax compliance and to ensure that the funds are being used to effectively provide for retirement.

What are the trustee responsibilities?
Trustees normally have responsibility for all aspects of running the fund including:-

• Maintaining all records of the fund
• Establishing and implementing the fund’s investment strategy
• Complying with all regulations under the SIS Act
• Lodging tax and regulatory returns, and 
• Keeping up to date with changes in the law to ensure the fund remains complaint.

The penalties for not complying with all the laws and regulations can be severe. These include applying higher taxes on the fund, freezing the assets of the fund and criminal prosecution of the trustees.

Eligible investment assets
Trustees have the discretion to decide what the fund invests in. Trustees will need to ensure that all investments are consistent with the fund’s investment strategy and do not breach the SIS Act or other laws.

The following investments will generally be acceptable:-

• Australian shares
• Managed funds
• Global property
• Direct property
• Other listed securities (that is, listed property trusts); and
• Bank deposits.

Particular attention needs to be given when considering the following:-

• Collectibles, such as art works, precious metals or gems
• Non-traditional investments; and
• Derivatives, warrants and other structured products.

It is recommended that trustees seek professional investment advice and consider the potential income and growth as well as the risks, liquidity and the diversification of the portfolio before making any investment.

Assets generally not permitted in SMSFs
Superannuation law does not prescribe what the fund can invest in. However, trustees must ensure that all investments are made with the fundamental purpose of providing for the retirement of members.

There are certain investments that would generally not be acceptable. These include:-

• Investments that deliver benefits to a person today rather than in retirement
• Loans to fund members of their relatives
• Assets acquired from members or their relatives assets with a charge over them
• A business to be operated by the fund or its members; and
• Non-arm’s length transactions.

More information on eligible assets is available from the ATO website.

TYPE OF FUND

All funds established are structured as personal SMSFs and enable the fund to become a regulated complying superannuation fund. The trust deed and documents are designed to assist the trustee to comply with the regulatory requirements.

Members of a personal fund may be self-employed, directors of companies carrying on a member’s business and other persons wishing to establish a fund which is independent of any particular employer. Employers may be formally admitted to participation in the fund but will not be a party to the trust deed. Contributions can be accepted from any employer of a member whether formally admitted or not.

The SMSF trust deed provides for the fund to be established by the “principal”, who is usually a member of the fund. However, the “principal” can also be a company or other entity which employs a member(s). The trustee is empowered to carry out all of the functions under the deed without the need for consent of an employer or the principal.

The trust deed:-

• Permits members, spouses of members and other persons to contribute to the fund in respect of existing members (including the government co-contributions)
• Permits employers of members to make contributions to the fund and have no further involvement (this is suitable for arms-length employers of members)
• Permits the trustee to enter into particular arrangements with an employer if it wishes, so as to admit the employer as a “participating employer”; and
• Is fully capable of operation in relation solely to amounts rolled into the fund, e.g. to finance the commencement of a pension from the fund for retirees without other contributions.

Fully Up-to-date
The deed is up-to-date to reflect the Simpler Super reforms, including using the new terminology associated with these reforms.

The deed allows for:-

• Contribution splitting
• Borrowing under an instalment warrant type arrangement
• Payment when a member has a terminal medical condition
• New type of pensions
• Binding death nominations
• Acceptance of contributions up to the age of 75; and
• Permits members, spouses of members and other persons to contribute to the fund (including government co-contribution).

 What does a New SMSF package include?

• Four sets of deed
• Product Disclosure Statement
• Trustee Declaration
• Relevant consents and resolutions; and
• Some documents to assist with the ongoing administration of the fund.

STEPS INVOLVED IN SETTING UP AN SMSF

 Once you’ve decided to set up an SMSF, these are the keys that should be followed (the order will depend on the circumstances of the fun):-

1. Decide on the Fund Structure – Who will be the Members of the fund? Will they be Individual Trustees or Directors of a Trustee Company?
2. Establish a Trust Deed – A legal document that sets out the fund rules and details the rights and responsibilities of the trustees and members
3. Register with the ATO – For the fund to be regulated and recognised as a complying fund, as well as obtain a TFN and ABN
4. Open a fund bank account – An account in the fund’s name to accept cash contributions and rollovers
5. Prepare an Investment Strategy – Provides the framework for the fund’s investment decisions; and
6. Appoint SMSF professionals – Consider whether to use one or more professionals to help you manage your fund e.g. Tax Agent, accountant, fund administrator, legal practitioner, financial adviser. An approved auditor must audit your fund each year and actuarial services will be required in certain circumstances.

 HOW CAN WE HELP YOU?

The right advice, expert guidance and professional services are never more valuable than when you’re establishing your SMSF. Getting off to a great start is vital. Our specialist fund establishment service makes sure the first steps are the right steps.

 We prepare all the documentation necessary for establishing your SMSF.

 Your complete fund establishment documentation kit includes:-

• Trust Deed
• Product Disclosure Statement
• Membership Application forms
• Consent to Act as a Trustee
• Binding Death Benefit Beneficiary Nomination forms
• Investment Strategy guidelines; and
• ATO Registration for Superannuation Entities form. This ATO application is to register for an Australian Business Number (ABN), Goods and Services Tax (GST) if applicable, a Tax File Number (TFN), and to elect to be regulated under the SIS Act.

If you require a Sole Purpose SMSF Trustee Company to be established, we can facilitate this process for you.

WHAT HAPPENS NEXT?

 Fund Establishment Process:-

1. You submit your New Fund Application Form
2. We send you your New Fund Documentation Kit
3. Register your fund with the ATO
4. Apply for the fund’s ABN and TFN
5. Act as the SMSF administrator and tax agent
6. Arrange the annual independent audit
7. Provide ongoing technical support and back up

WHAT ONGOING ADMINISTRATION SERVICES DO WE OFFER?

We can provide you with ongoing support in the areas of administration, account and compliance and provide online portfolio administration and reporting service, including yearend accounting, auditing and compliance.

 The chart below gives a quick comparison of what we can provide:

Fund Reports	Annually	Quarterly	Annually
Transaction Processing	Monthly	Quarterly	Annually
Account Reconciliation	Monthly	Quarterly	Annually
Year End Return	Monthly	Quarterly	Annually
Audit	Monthly	Quarterly	Annually
Mailbox	Monthly	Quarterly	N/A
Instalment Activity Statements	Monthly	Quarterly	N/A
Business Activity Statements	Monthly	Quarterly	Additional Fee
Lump Sum Documentation	Monthly	Quarterly	Additional Fee
Rollover Documentation	Monthly	Quarterly	Additional Fee
Pension Level Calculations, if required	Monthly	Quarterly	Additional Fee
PAYG Payment & Statements	Monthly	Quarterly	Additional Fee
Centrelink schedules, if require	Monthly	Quarterly	Additional Fee
Interim Accounts	Monthly	Additional Fee	Additional Fee

 

NEED FURTHER INFORMATION?

If you have any questions or require further information please contact this office on (07) 3369 5055 or email your enquiry to peter@lewis.net.au

This material is current as July 2010. It is intended as general advice only and does not take into account a potential investor’s objectives, financial situation or needs. Before making any investment decisions, you should seek advice from a licensed financial planner. We are Chartered Accountants and Registered Tax Agents. We are not licensed to give financial advice.

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