How does a SMSF work?

A Self Managed Super Fund is a form of trust. Its sole purpose must be to provide an income upon retirement for its members, or as a death benefit. A SMSF has its own Tax File Number (TFN) and Australian Business Number (ABN), and is required to have its own bank account. The members of the fund simply direct their superannuation contributions into the SMSF bank account, like you would with a retail super fund.

As a member/trustee of the fund, you are responsible for ensuring there is an investment strategy for the fund, and implementing investment decisions. Usually, you would discuss your investment objectives with an Investment Adviser and formulate your strategy together.

SMSFs have strict lodgement and administrative obligations, which require ongoing attention. These include keeping copies of all records, keeping minutes of Trustee decisions and preparing annual financial statements. A SMSF must lodge an annual tax return, and have the financial statements audited by an approved auditor to audit the operations of the fund for that period.

For further details on running a SMSF,

Trustee Structures

There are two types of Trustee structures available to SMSFs.

Individual Trustees

Often a SMSF will consist of a Husband/Wife and potentially children. Every member of the fund must be a Trustee.

Where there is a single member fund, there must be at least 2 individuals to act as trustees on behalf of the fund. In this scenario, the Member must appoint a second person to act as trustee, or consider a company to act as trustee.

The trustees are legally responsible to make decisions on behalf of the fund and ensure the fund remains compliant at all times. As individual trustees you effectively hold the assets of the fund in your name on behalf of the fund.

eg Jason Smith & Jenny Smith as Trustees for Smith Superannuation Fund

Company Trustee

A company is often utilised to act as a trustee when there is a single member fund (eg an individual wants to be the sole signatory/decision maker and member of the fund and does not have anybody willing to act as the 2nd trustee). A company is established with the member of the super fund acting as a Director of the company.

A Company Trustee may also be preferred by SMSF trustees for ease of administration.

There are additional costs associated with setting up a company and additional paperwork which should be discussed with an Investment Adviser when deciding on your trustee structure.

For further information about Individual vs Company Trustee

Who can be a Member/Trustee of a SMSF?

Essentially, anyone 18 years of age and over, who is not under a legal disability, can be a trustee of a superannuation fund, unless they are a disqualified person. An individual 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 insolvent under administration;
  • Are an undischarged bankrupt or;
  • Have been disqualified by the regulator.

What do you do with your existing super?

Balances in existing superannuation accounts can transfer to your SMSF, by requesting a 'roll-over form'. The funds are then paid to your SMSF bank account and available for you to invest.

Can you contribute extra amounts to your SMSF?

Yes you can. Many SMSF members utilise the SMSF as a savings vehicle due to the tax effectiveness of the structure. However, there are limits that you can contribute to your fund and specific rules and regulations apply so you should discuss with an Investment Adviser.

For a summary of superannuation contribution limits