• There are many advantages in operating your own self managed superannuation fund, which can be summerised as follows:
• The Fund only pays 15 per cent tax on the taxable income of the fund and the tax payable is reduced by imputation credits on dividends received by the Fund. Capital gains tax on assets held in the Fund for more than 12 months and then later sold are taxed at equivalent to a flat 10 per cent rate.
• The Trustees of the Fund control the investment decisions and asset mix, and have the flexibility to change investments when they consider that this is appropriate (i.e. they are not locked into a fund manager’s mandate or poor returns controlled by someone else).
• An SMSF encourages you to be self sufficient in retirement and to take an interest in your financial affairs.
• The Fund can be used to accumulate superannuation assets, which can then be used to pay a superannuation fund pension to the members when they retire. This offers increased financial security later in life. Furthermore, some members may also qualify for part or full government age pensions.
• Costs of compliance and administration are often less than the fees charged by a public superannuation fund (although this can vary with the size of the investment, cost of advice, number of transactions and amounts and types of investments held).
• The members do not get charged an entry fee when they contribute to their Fund or an exit fee if they withdraw their benefits (however their advisors may charge a fee to prepare exit paperwork).
• Where you are running a business, you can own the business premises in a self managed superannuation fund and rent to your business entity or a related party. The Fund may also own residential property so long as it is purchased from and leased to an unrelated party.
• Once aware of your responsibilities, it can be financially rewarding. For example, superannuation fund investments can be selected and where appropriate integrated with your personal investments (within limits) to get overall diversification.
• A properly structured self managed superannuation fund safeguards assets in the event the superannuation balance outlives the members, so your family and other Fund members benefit.
• When you take the time to understand the rules and the constraints and stay within them, you rarely encounter any problems. As a specialist in this field, Hansens can guide you every step of the way from the setup, to providing investment and wealth creation advice for accumulation purposes, to conversion to pensions, to paying out benefits when members die.
• Where there are advantages there will also be corresponding disadvantages. It is important for you to consider the disadvantages (as well as the advantages) to determine whether a self managed superannuation fund is right for your circumstances. The disadvantages can be summarised as follows:
• You will need to pay ongoing attention to investments, the economy and changes in legislation (as you are responsible for the investment decisions within the Fund).
• The potentially higher costs of self managed superannuation funds with low capital balances may make the fund non – competitive when compared with the net returns from an account in a larger superannuation fund.
• The members are also the Trustees, which means they have additional responsibilities and the requirement to comply with legal requirements.
• The Fund may have a lower investment performance if the trustees’ and members’ management is not closely controlled or if there is too much reliance on commercial advisors, as distinct from the professional advisors not affected by commission income.
• If the Fund ever becomes non – complying (for example, there is a serious breach of investment rules with related parties) it can lose its tax concessions.
• There is a need for continuing attention to investment management and the administrative and tax matters of a self managed superannuation fund both to obtain good investment performance and to meet the administration and legal obligations on trustees. Continuing investment management tends to be relatively more important in relation to medium risk investments (such as shares or property) and not quite so significant in relation to short or medium term cash investments.

Establishing the Self Managed Superannuation Fund

Once the decision has been made to establish the self managed superannuation fund, it is as easy as contacting our office to establish the necessary regulatory paperwork on your behalf.

Completion of Fund Application Form

In order to establish your Fund for you, we will require the following details:

1. Name of Fund - you can name the Fund anything you like (within reason). The name should be kept simple for administration purposes. Where you have two Funds, the Fund names should be made very distinguishable for identification purposes.
2. Sponsor of the Fund - a Fund can have a specific employer sponsor or a principal sponsor. Where individuals have established a Fund they may elect to have one or more of themselves as the principal. In this case they will be the principal sponsor, however, this does not limit any employer contributing to the Fund. This is convenient where members may have different employers or where a member changes employment frequently, as no alteration to the trust deed will be required.
3. Trustee/s - Trusteeship is a serious matter and you should be aware of your obligations and the implications of failing to fulfill these obligations. Trustees are also required to sign a Trustee Declaration advising that they are aware of their responsibilities in accordance with the SIS Act and Regulations.  If you elect to set up the Fund with individual trustees there is no separate entity and therefore there are no separate costs associated with the trusteeship. However, where a separate corporate trustee is used and has been established for that specific purpose there may be additional costs. There will be costs associated with established of the company (if you don’t already have a company available to use) and lodgement of the Australian Securities Commission annual return which requires a $70 lodgement fee for entities active solely as the Trustee of a superannuation fund.
4. Stamp Duty - there is no stamp duty levied by some States on the establishment of a Trust Deed. Amendments to the Deed, however, will sometimes attract some Stamp Duty.
5. Commencement Date of the Fund - this is the date you want the Fund to become operative. Remember if you commence the Fund before year-end, such as 29 June, they will have all the reporting obligations in that reporting period.
6. Members - anyone can be a member of the superannuation fund, however, some very careful assessments should be made before allowing someone to become a member. Several aspects must be considered:
   

The Fund cannot exceed 4 members or it will not be able to be classified as a self managed superannuation fund.
The advantage of a self managed superannuation fund includes the privacy and flexibility of a limited number of related people having their own superannuation fund. Therefore careful consideration should be given to admitting unrelated members.
External parties in the Fund may mean other parties would have an influence over, and knowledge of your client’s personal financial affairs.
Remember a Fund cannot accept contributions in respect of a member unless the member satisfies the criteria set out in SIS Reg 7.04.
As all members are required to be trustees and vice versa, anyone who is under legal disability will not be able to act as a trustee. However, they may still be able to be a member of the fund, so long as their legal personal representative acts as a trustee on their behalf. Furthermore, a disqualified person is not able to act as a trustee of a fund. As a result, someone who is considered a disqualified person is not permitted to be a member of a self managed superannuation fund.

Lodgement of Regulated Status Form

To become a regulated superannuation fund and as a consequence be eligible for concessional taxation treatment you must lodge an “Application for ABN Registration for Superannuation Entities” notice with the ATO within 60 days.

The Fund will be provided with an ABN and TFN, when the ATO has processed the form. Funds no longer receive the Notice of Complying Status, however the form allows the trustee to elect the fund to be regulated under the SIS Act.

Nominated beneficiaries

All members of the Fund should nominate beneficiaries and the percentage of a benefit payment to be divided to all beneficiaries. It should be noted that for the nomination of beneficiaries form to be binding on the Trustee, it will need to meet some requirements (i.e. being witnessed by 2 witnesses over 18 years if age and only nominating dependents in the form). It is the Trustee’s responsibility to ensure that reasonable attempts are made to locate all beneficiaries or potential beneficiaries before any payments are made.

For a self managed superannuation fund, binding death nomination forms are non-lapsing. Trustees should ensure however that their Trust Deed permits the use of binding death nomination forms, otherwise these will not be binding on the Trustee on the death of a member.

Development of the Investment Strategy

In accordance with SIS Act section 52(2) (f), it is a requirement for an SMSF to have an investment strategy. There are several good reasons why every fund should have one.

As with all businesses there should be a plan to achieve objectives and a benchmark by which to measure performance. A good investment strategy will provide this.
While professional advisors can provide guidance to the Trustee/s in the application of the Fund’s monies, at the end of the day it is the Trustee/s who make the decision on how and where to invest.
If the Fund performs poorly and it has no investment strategy it could be determined that the Trustee did not act as a prudent man of business and therefore leave the Trustee exposed to litigation from any dis-satisfied member.

Therefore on the establishment of the Fund, the Trustee should give effect to the Fund’s investment strategy. In developing the investment strategy the following aspects must be considered:

• Risk
• Diversity
• Liquidity
  

Ability to discharge the Fund’s existing and prospective liabilities

It should be noted that consideration must be given to these aspects, however it does not mean an investment cannot have elements of risk, or that a Fund cannot invest in the one asset or one type of asset.

In determining the investment strategy, the Fund in its entirety should be assessed as well as the individual members own wealth and investments should be considered as a part of this process.

Such matters as the member’s age, financial position, the types of investments the member currently holds, the financial experiences and current employment of the individual and the form in which the member would like to take their benefit, should be considered.

The ATO will actually look for evidence of the thought processes associated with developing the strategy. This will ensure that the process has achieved the objectives which the ATO wants SMSF’s to achieve.

Opening of Bank Account

The bank account will be opened in the name of the superannuation fund. The money in the account is solely for the purpose of superannuation and the Trustee should ensure this purpose only, and not for matters such as the family shopping or an overdraft facility for the business. This does occur and the ramifications can result in the Fund becoming non-complying with monetary penalties or even jail for the Trustee, so it is an important aspect in your role as a Trustee of the Fund.

Many institutions are tailoring accounts specifically for superannuation, so it is certainly worth shopping around. The procedure for opening an account is the same for any other entity. You will need to provide the bank with:

Extract of the Deed (normally referred to as schedule A) which shows the Fund name, trustee/s name and signature and a company seal where a corporate trustee is used.
Tax File Number of the Fund as soon as this becomes available in order to avoid withholding tax being deducted.

Transferring Benefits

You will already have some superannuation invested elsewhere, as a result of Superannuation Guarantee contributions by employers, and this is often a very good starting point from a cost perspective.

You should first determine the costs, if any, associated with transferring existing monies into the new self managed superannuation fund. You do this by contacting the masterfund, quoting the policy number and asking for details of transfer costs, including any redemption penalties. Timing may also be critical. If there are fees, you will need to assess and decide whether you still want to transfer the moneys into the new fund.
Lodgement of Regulated Status Form

To become a regulated superannuation fund and as a consequence be eligible for concessional taxation treatment you must lodge an “Application for ABN Registration for Superannuation Entities” notice with the ATO within 60 days.

The Fund will be provided with an ABN and TFN, when the ATO has processed the form. Funds no longer receive the Notice of Complying Status, however the form allows the trustee to elect the fund to be regulated under the SIS Act.

Nominated beneficiaries

All members of the Fund should nominate beneficiaries and the percentage of a benefit payment to be divided to all beneficiaries. It should be noted that for the nomination of beneficiaries form to be binding on the Trustee, it will need to meet some requirements (i.e. being witnessed by 2 witnesses over 18 years if age and only nominating dependents in the form). It is the Trustee’s responsibility to ensure that reasonable attempts are made to locate all beneficiaries or potential beneficiaries before any payments are made.

For a self managed superannuation fund, binding death nomination forms are non-lapsing. Trustees should ensure however that their Trust Deed permits the use of binding death nomination forms, otherwise these will not be binding on the Trustee on the death of a member.

Development of the Investment Strategy

In accordance with SIS Act section 52(2) (f), it is a requirement for an SMSF to have an investment strategy. There are several good reasons why every fund should have one.

As with all businesses there should be a plan to achieve objectives and a benchmark by which to measure        performance. A good investment strategy will provide this.
While professional advisors can provide guidance to the Trustee/s in the application of the Fund’s monies, at the end of the day it is the Trustee/s who make the decision on how and where to invest.
If the Fund performs poorly and it has no investment strategy it could be determined that the Trustee did not act as a prudent man of business and therefore leave the Trustee exposed to litigation from any dis-satisfied member.

Therefore on the establishment of the Fund, the Trustee should give effect to the Fund’s investment strategy. In developing the investment strategy the following aspects must be considered:

• Risk
• Diversity
• Liquidity