Frequently Asked Questions (FAQ's)
Yes, there is a lot of technical jargon around SMSFs. Our clients appreciate that we keep an eye on the legislative requirements and changes for them so they do not have to. However, if you want learn more, we’ve provided some answers to some FAQ’s around your super.
Setting up your SMSF FAQ's
What is a SMSF?
A self-managed superannuation fund (SMSF) is a tool used to help people save money for retirement. Unlike other superannuation funds, SMSFs are independently managed so the owners of these funds have full control over their investments and ultimate retirement savings.
What is the definition of an SMSF for Australian Taxation Office (ATO) purposes?
The ATO defines SMSFs as superannuation funds which:
- Have less than 5 members
- Each individual trustee of the fund is a fund member
- Each member of the fund is a trustee or director of the corporate trustee
- No member of the fund is an employee of another member of the fund, unless those members are related
- No trustee of the fund receives any remuneration for his or her services as a trustee.
What are the requirements of an SMSF?
There are several ongoing administration requirements, including:
- SMSF annual tax return
- Benefit reporting where required
- Annual fund audits
- Annual member statements outlining member benefits
- Maintaining an investment strategy.
Do I have enough superannuation to establish an SMSF?
Everyone has a different opinion on the amount of funds required to establish an SMSF. The ATO has estimated that a minimum of $200,000 is essential to operating a viable superannuation fund, given the costs of owning an SMSF. Ultimately, it is important to seek the expertise of a financial adviser so they can determine the appropriate figure for you.
What is a Trust Deed?
A Trust Deed is essentially a book of rules that the superannuation fund must abide by. A Trust Deed is the first major piece of documentation prepared during the establishment of an SMSF.
Who can be a trustee of an SMSF?
A person 18 years or over and not under a legal disability (bankrupt or mental impairment) can be a trustee of a superannuation fund unless they are a disqualified person.
A disqualified person is one who:
- Has ever been convicted of an offence involving dishonesty
- Has ever been subject to a civil penalty order under the SIS Act
- Is considered insolvent under administration
- Is an undischarged bankrupt, or
- Has ever been disqualified by a regulator.
A person under 18 years of age can not be trustee of a superannuation fund. A parent or guardian can be a trustee for a member who is under 18 years of age and does not have a legal personal representative.
Note that a corporate trustee of a SMSF also must not be a disqualified company.
A disqualified company is one which:
- Has a responsible officer who is a disqualified individual
- Has had a receiver or provisional liquidator appointed, or
- Has had an action commenced to wind up the company.
A declaration needs to be signed each year by all trustees or directors, stating that they are not disqualified.
What are the duties and responsibilities of a trustee?
Your trustee duties and responsibilities include:
- making sure the purpose of the fund is to provide retirement benefits for members,
- preparing an investment strategy and making investment decisions in accordance with that strategy,
- accepting contributions and paying benefits (income streams and lump sums) in accordance with super laws and the fund trust deed,
- advising us of any changes in trustees, directors or members within 28 days of the change occurring,
- ensuring an approved SMSF auditor is appointed for each income year,
- undertaking administrative tasks such as lodging annual returns and record keeping.
What is the ‘Sole Purpose’ test?
The ‘Sole Purpose’ test outlines that a superannuation fund must be maintained for the purpose of providing benefits upon a member’s retirement, or to a member’s dependants in the case of a member’s death. Trustees need to ensure that all investment decisions satisfy the ‘Sole Purpose’ test.
What investments can I have within my SMSF?
Subject to the rules that apply, these investments include, but are not limited to:
- Cash and Fixed Interest
- Managed Funds
- Real Property
What are the benefits of an SMSF?
- Investment Flexibility - you can choose the type of investments you want for your superannuation fund. This flexibility allows SMSF members to actively manage their investments.
- Investment control - you can decide how best to invest your superannuation fund’s assets and how to make money for your fund.
- Estate Planning - You can tailor the distribution of benefits payable on death in the most tax effective manner for your dependants. Sophisticated strategies are available for complex estate planning situations.
- Tax Planning - Like other superannuation funds, a SMSF has the lowest tax rates of any structure in Australia with a maximum tax rate of 15%.
- Asset Protection - As your superannuation entitlements are protected from your creditors you can use your fund to protect at least some of your wealth.
- Borrowing - New rules were introduced which allowed superannuation funds to borrow money under a particular type of arrangement.
- Pension Planning - For those members nearing pension phase, a SMSF allows the most seamless transition from accumulation into flexible income streams.
Grow your Super FAQ's
What are Superannuation Guarantee (SG) contributions?
These are mandatory superannuation contributions made by employers on behalf of their employees.
What are concessional contributions?
Concessional contributions are before-tax contributions which can be made by your employer or yourself (subject to certain conditions) and are taxed at a rate of 15%.
What are non-concessional contributions?
Non-concessional contributions are voluntary after-tax contributions which are made by you.
Up to what age can I make superannuation contributions to my SMSF?
SG contributions or contributions under an award or industrial agreement can be made to your SMSF, regardless of your age. However, there are limits on the voluntary (concessional and non-concessional) contributions you can make to your SMSF. you can make voluntary contributions to your SMSF up to 28 days after the end of the month in which you turn 75. From age 65, in order to make a contribution you are required to meet the “work test”. The “work test” stipulates that you need to have been gainfully employed for at least 40 hours within a 30 day period, before a contribution is made. It is important to note that under the “work test”, you must have worked the required hours within the same financial year and it must be non-voluntary work.
What is SuperStream?
SuperStream is a Government initiative used by employers to make electronic superannuation contributions on behalf of their employees.
Enjoy your Super FAQ's
Will I still be eligible to receive the Age Pension?
To be eligible for the Age Pension you must be 65 years or older and meet the income and assets test. For more information, please refer to the Human Services website (or give us a call).
Can I take a lump sum from my superannuation fund?
Yes, if you are below aged 60, there may be some tax to pay.
What is a taxable and tax-free component?
Each superannuation interest is made up of a tax-free component and a taxable component. These components are not always constant and can change over time.
The taxable component of a member's super interest is the total value of the member's super interest less the value of the tax-free component.
Contributions that would form part of the taxable component are generally amounts included in the assessable income of the fund. This would include concessional contributions and earnings.
The taxable component of a super benefit may consist of a taxed element and/or an untaxed element, depending on whether the benefit is paid from a taxed or untaxed source. Funds will need to determine these elements before paying any super benefits.
The tax-free component of a member's super interest is the sum of the value of the contributions segment and the crystallised segment.
The contributions segment generally includes all contributions made after 30 June 2007 that have not been, and will not be, included in your fund's assessable income. These are most commonly member contributions where a tax deduction has not been claimed by the member.
SMSF for Investing in Property FAQ's
Can I or my relatives stay in any residential properties within my SMSF?
No. Property must be maintained within the SMSF purely for investment purposes only.
What are the advantages to having property within an SMSF?
Having property in your SMSF can have the following benefits:
- Asset protection
- Reduced tax on earnings
- Reduced tax on capital gains
Can I use my SMSF to buy a commercial property to lease back through my business?
Yes you can, however there are particular criteria you would need to satisfy:
- The commercial property would need to comply with the sole purpose test
- The terms of the lease agreement would have to be commercially competitive
- The lease agreement terms must be adhered to and the transactions must be at arms length, meaning that investment transactions must be conducted on a commercial basis as if there was no relationship between the parties.
- Valuations for the commercial property would need to be done on a regular basis (every 3 years) to comply with legislation.
How does a Limited Recourse Borrowing Arrangement Work?
A limited recourse borrowing is an SMSF loan. The loaned funds can be used to purchase an asset held in a separate trust. To learn more about Limited Recourse Borrowing Arrangements, visit Grow Your Super.
What is a related party?
The ATO defines a 'related party' as follows:
- All members of your fund
- Associates of fund members, which includes,
- The relatives of each member
- The business partners of each member
- Any spouse or child of those business partners, any company a member or their associates control or influence and any trust the member or their associates control.
A relative of a member means any of the following:
- A parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse
- A spouse of any individual specified above.
SMSF for Estate Planning FAQ's
What are death benefit arrangements?
Death benefit arrangements are documentation that allow you to nominate person/s who you wish to receive your superannuation death benefits upon your death.
Who can I nominate under these death benefit arrangements?
You can nominate your dependant/s and/or your Legal Personal Representative(Estate). Dependants include:
- Spouse (includes both opposite and same-sex de-facto partners)
- Children under the age of 18
- Other financial dependents
What are the benefits of these death benefit arrangements?
Death benefit arrangements allow you to have better control of where your superannuation death benefits will be directed (particularly with a binding nomination).
What do I need to consider with a death benefit arrangement?
There are a range of things you need to think about before establishing a death benefit arrangement within your superannuation fund:
- Should you decide to leave your superannuation to your Estate, your Will needs to reflect your current wishes
- Particular attention must be paid where there are blended families, as this may involve the preparation of a more complex nomination
- You will need to choose the type of death benefit arrangement that best fits your individual circumstances
A professional can help provide you with advice on the above matters.