The best thing about SMSFs is that, the members can also be the trustees of these funds. It implies that the members remain responsible for their benefit, adhering to the tax norms in Australia. This explains why you would need professional support when you invest in a self-managed super fund.

Knowing the SMSF norms

Currently, Australia has got more than 600,000 SMSFs, involving more than 1.1 million people involved in them. These figures speak tons about the popularity of SMSFs.

The objective of an SMSF is to impart its members with retirement benefits, or to their dependents, in case any member deceases before retirement. There should be a legal tax structure in these SMSFs, for which you need to create a trust. Both individual and corporate trustees can be formed. These trustees manage the assets of the SMSFs and need to ensure that they adhere to the legalities and taxation norms. Therefore, you need to get the funds audited annually. The trust also needs to fulfil ATO’s taxation norms and report to the authorities annually.

Conditions to fulfill to be an SMSF

Before you start accumulating your retirement fund, have a look at the conditions that your fund has to fulfill to be an SMSF.

·       The number of members contributing to the fund cannot exceed six.

·       If a company becomes a trustee for the fund (corporate trustee), each member has to become a director.

·       Each member has to be a director for corporate trustees or an individual trustee.

·       One member of the SMSF fund cannot employ another member. This would be possible only when they are relatives.

·       No remuneration should go to any member for their services or duties as a trustee.

Different rules are applicable to the situation where a single member constitutes an SMSF. Have a look at these norms.

·       There can be a single member in the trustee if it is a corporate or organization.

·       There are only two directors, and the member happens to be a corporate trustee.

·       The member does not employ the director (apart from the case that they are relatives).

·       In case the fund’s trustees happen to be individuals.

Under certain circumstances, other members might be allowed to serve as a trustee of the fund on the behalf of its members. This is applicable if a member passes away, or becomes disabled.

 How does an SMSF operate?

As a trustee of an SMSF, you need to make calculated investment decisions. SMSFs legally need to have an investment strategy documented. Moreover, this strategy needs to fulfil certain purpose tests. Accordingly, the decisions of the trustee would be made on the basis of this strategy.

Here are some important factors you need to consider while formulating the investment strategy of an SMSF.

·       The fund member’s individual characteristics, their financial stature, age, and risk profile.

·       The advantages of diversifying the investments to mitigate risks. Some of the prime investment options include direct shares, fixed interest products, real estate, listed property, and managed funds.

·       The ease at which you can convert the assets to cash for the payment to its members when needed in the future.

·       The contemporary insurance requirements of the members to assure proper coverage.

 Why do Australians go for SMSFs?

Although accumulating retirement funds through SMSFs calls for professional financial planning, legal advice and tax auditing, they can be an intelligent investment. Some of the prime benefits of these funds include:

Controlling the investments

When it comes to fund allocation, the trustees can have a greater degree of control over how they invest the fund. While public funds happen to be a lucrative investment avenue, you have other options as well. For instance, you can go for direct residential real estate investment, without considering the restrictions that other public funds face.

Moreover, business owners can purchase commercial property or their business premises using their SMSF. Then, they can lease it to a related segment.

 Tax benefits

If you are looking for a tax-effective avenue for investment, you should seriously consider SMSFs. They comply with the norms of super legislation, and you can get a concession on tax. Here, a 15% tax rate is applicable, which is relatively lower than other slabs. Moreover, the financial benefits you would receive after crossing 60 years of age are completely free from tax. Some people opt to receive the funds through pension. These incomes also come free from tax. Not simply SMSFs, but all super funds receive these tax benefits. However, you would enjoy the flexibility with SMSFs, considering their tax strategies around franking credits, taxable income, and capital gains.

Apart from this, you would also benefit from comparatively lower charges and fees involved in the process.

The importance of legal and financial knowledge for trustees

Do you know why most investors and trustees work closely with reputed accounting firms in Australia when they invest in SMSFs? You need adequate legal and financial knowledge to handle everything with professionalism. In the first place, you need to understand all the investment markets and diversify your portfolio. Next, you need to check your risk tolerance and needs of your investment. Once invested, trustees need to organize insurance for the members and adhere to the investment regulations, tax norms, and other laws in Australia. You would also need a professional hand in auditing the funds.

When it comes to something as serious as your retirement funds, it makes sense to consult a professional accounting company.

Check out one of the established service providers in Australia, as you plan for your finances for the future!