Self Managed Super Funds (SMSFs) are established for the sole purpose of providing financial benefits to its members during retirement. The main difference between SMSFs and normal super funds is the first two words ‘ self-managed’, which means you and up to 3 other members of the super fund have full control over it and can tailor it to suit your individual needs.
Retirement is your time to enjoy your hard-earned money, but just because you’ve stopped earning money in the traditional sense, it doesn’t mean you can’t continue to grow your super. Having a SMSF suits a lot of people because we all have unique circumstances when it comes to retirement and how we want to manage our super. It means you can control what you do with your money and how you want to invest it.
However, having a SMSF isn’t as simple as making the investment decisions, there is some management that goes into it. Unlike normal super funds, who manage it for you, you must do some work. There are a handful of important things a lot of people don’t realise when they establish their own SMSF, so if you have a SMSF, you’re thinking about establishing one, or you have just started one, read on because we have 5 useful insights for managing your SMSF, which will get you one step ahead of the rest.
Contributions & Rollovers
It’s important that you properly document contributions and rollovers within your SMSF. As a Trustee of the SMSF, you can accept contributions and rollovers from your members from various sources, but you must be aware of some of the restrictions, these can be dependent on the member's age as well as contribution caps. What is a contribution cap? It limits the amount that can be contributed to a member each financial year. If the contributions for any member exceeds the cap, you may be liable for additional tax on excess contributions. This is why it’s important to keep an accurate document of contributions to ensure you don’t exceed this cap and end up paying more tax than you need to.
If you’re too busy enjoying your retirement to worry about accurately documenting these contributions and rollovers, it’s best to appoint a professional who can help you manage your super fund and ensure it’s fully compliant.
Tax on Income
The income on most SMSF is taxed at a concessional rate of 15%, however, this is only for complying funds that follow the rules and regulations of SMSFs. If your fund is not complying, you will be taxed at the highest marginal tax rate.
There are some tax exemptions when you reach retirement phase - yay! Once you begin paying superannuation income streams (pension payments), your SMSF can receive further tax concessions.
Now I don’t know about you, but we all like to pay as little tax as possible and keep our money in our own pockets. Ensuring your SMSF is compliant with all the laws and rules is crucial when it comes to tax time and getting the lowest rate you can. To avoid any unexpected tax bills, speak with a professional accountant and financial planner who already help other people manage their SMSFs and can help you do the same.
Paying Benefits
It’s time to start enjoying the fruits of your self managed super fund - hoorah! But there are some conditions you must be aware of when it comes to paying benefits to members of the SMSF.
There are some conditions of release which members must meet in order to receive benefits. You can begin paying member super benefits when the member reaches ‘preservation age’, such a retirement. The payment can either be paid in a lump sum or as an income stream (pension).
If you pay benefits to the members and they don’t meet the required conditions of release, they are not treated as super benefits and instead it will be taxed as ordinary income for the member at their marginal tax rate. You need to be aware that if a benefit is released which isn’t compliant you may be penalised by the Australian Tax Office.
We realise it’s hard to know all this information, what you can and can’t do, what’s legal and what’s not. You would think a SMSF would allow you more flexibility, which it does, but it still has its limitations. To avoid making mistakes or receiving penalties, engage a professional SMSF manager who can help you stay compliant and get the best outcome for your SMSF and it’s members.
Appoint a SMSF Auditor
All SMSFs must have an appointed auditor to audit your fund each year. They will examine your fund’s financial statements and assess that you find is compliant with the super law. This must be done no later than 45 days prior to lodging your SMSF annual return. You need to give your auditor information about your accounts and transactions for the previous financial year and if they require any additional information it must be provided within 14 days. Once the audit is complete, they will advise you of any breaches of the rules and regulations (if any). You then have the opportunity to rectify what you can before you lodge your annual return. Ensuring all your documentation and financial statements are up to date and accurate is crucial. Having a professional to help you manage your SMSF throughout the year will help to make sure there won’t be any breaches of the rules, the audit is run smoothly and you can lodge your annual return with confidence.
Keep Records
Keeping records is important because not only is it often a legal requirement with the Australian Taxation Office, but it also ensures you have yourself covered in the unlikely event of things changing with the fund members. Often couples will be trustees of the same SMSF, but if things change and there’s a relationship breakdown or a trustee dies, you want to ensure that all decisions before then have been documented and approved by all parties. For example, as one of the trustees of the fund, you might make a decision to invest some of the fund's money and it fails. Without approval from the other trustees, they may be able to take legal action against you. However, if on the flip side you had discussed this in a meeting with a mediator, minutes of the meeting were kept and all parties signed to agree on the investment, you have covered yourself!
That’s just 5 useful insights when it comes to managing your SMSF. We’re just scraping the top here, there is a lot to know and understand when it comes to managing your own super fund. We love meeting clients who have taken ownership of their super, it’s great to see you want independence and flexibility to make unique financial decisions with your retirement fund.
We understand, it can be overwhelming trying to manage it all on your own, keep up with all the rules and regulations, while trying to enjoy your retirement. If you would like to discuss how we can help you manage your super fund and take some of the pressure off, so you can enjoy retired life, give us a call on (03) 6424 4021, and we can book a meeting to discuss your needs and how we can give you some of your time back.