SMSF Basics

What is a SMSF ?

A DIY / Self Managed Super fund (or SMSF) is a superannuation fund where you, the members, are also the trustees of the fund. Trustees of superannuation funds have total control over the Fund, including the investment strategy, and are ultimately responsible for everything that happens within the fund. This "control" aspect is probably the most common reason for members setting up their own fund, however with this control also comes responsibility.

There are administrative and compliance obligations that come with super fund trusteeship, and new trustees need to embrace this and take it on board before they go ahead with establishing a fund. With large commercial super funds, the trustee is usually a large specialist corporate trustee or large funds management organisation with plenty of in-house expertise, so individuals need to carefully consider before proceeding that they are essentially taking on this very same responsibility.

Traditionally, the main group of people establishing SMSFs have been those who are used to taking on business related responsibilities and complying with regulations of some sort, such as small business owners / the self employed. However, others attracted to the SMSF vehicle have been high income earners with larger account balances where the SMSF is a more cost effective option than a commercial super fund, along with other superannuation members who have become disengaged from the managed super fund industry and wish to manage their super fund investments in a way that is not available within a larger commercial or industry super fund. The "choice of super fund" regime that began in July 2005 ushered in an era where it became more viable (subject to other considerations) for employees to have their own SMSF, and still have their employer contribute to it.

A Super fund is considered a Self Managed Superannuation fund if it has the following:

- it has four or less members
- no member of the fund is an employee of another member of the fund, unless they are related
- each member is a trustee, and no trustee of the fund receives any remuneration for their services as a trustee.
or
- if the fund uses a corporate trustee each member of the fund is a director of the company, the corporate trustee does not receive any remuneration for its services as a trustee, and no director of the corporate trustee receives any remuneration for their services as a director in relation to the fund.

Employees cannot be in the same self managed superannuation fund as an employer member, unless they are related.

Single member funds:

It is possible to have a self managed superannuation fund with only one member. A single member fund may have a corporate trustee, but the member must:

- be the sole director of the trustee company, or
- be related to the other director of the trustee company and there are only two directors of that company, or
- not be an employee of the other director of the trustee company and there are only two directors of that company.

A single member fund may alternatively have two individuals as trustees. The member must be one trustee and the other trustee must be:

- a person who is related to the member, or
- any other person, provided the member is not an employee of that person.

Important note : Who can't be in a SMSF

A 'disqualified' person is not allowed to be a trustee (or be a director of the trustee company) of a SMSF.

A person is a disqualified person if they :

- have ever been convicted of an offence involving dishonesty;
- have ever been subject to a civil penalty order under the SIS Act;
- are an undischarged bankrupt;
- have been disqualified by a regulator

Further to this, a company cannot act as trustee if:

- a responsible officer (e.g. director, secretary, executive officer etc) of the company is disqualified;
- a receiver, official manager or provisional liquidator has been appointed to the company; or
- action has commenced to wind up the company.