If you’ve ever thought of switching to a self-managed superannuation fund (SMSF) to control, involve and manage your retirement savings better, you are not alone. The good news is many people are eligible to set up and become SMSF members. As of March 2021, there are 1,120,936 Australians who are members of an SMSF.
The Australian Taxation Office (ATO) imposes strict regulations for fund compliance and there are specific requirements you must meet to be eligible to become a member of an SMSF.
It is important to know the eligibility requirements both for trustees and members. It is also important to understand the steps involved in setting up an SMSF.
Who can be a member?
Becoming a member of an SMSF relies on a person meeting the following criteria:
- a person must willingly consent to be a member and accept the required responsibility
- they must be in good financial standing which means:
- not a disqualified person by SMSF regulators
- not declared bankrupt
- not have an employer/employee relationship with fellow members unless they are relatives, and
- responsible for complying with superannuation legislation
Children under the age of 18 can be members of an SMSF but they cannot be trustees, so this role is usually undertaken by a parent or guardian.
It is best to seek advice from a BG Private Clients SMSF expert for advice before adding underaged members to an SMSF.
Does a member have to be a trustee?
Yes, the requirement of establishing an SMSF is all members must be a trustee of the SMSF, be willing and able to uphold the legislative requirements and responsibilities imposed on trustees.
Setting up an SMSF might give you access to control your retirement funds, but you are still required to adhere to superannuation legislation and meet obligations and responsibilities. You may still be subject to penalties and tax consequences if you fail to do so.
What about corporate trustees?
Having a corporate trustee allows one to four directors in the company, all of which must also be members of the fund.
If the SMSF has individual trustees, there must be a minimum of 2 trustees up to a maximum of 6, all of which must be a member of the fund.
SMSF is not totally a ‘do-it-yourself’ fund
Are you one of the few people calling SMSFs a ‘do-it-yourself super’ or ‘DIY funds’? Technically, an SMSF will give you more control over your super – but you don’t have to do it all yourself.
You might get flexibility with your investment options, but you will still be required to adhere and to fully understand the responsibilities with regards to the Superannuation Industry Supervision Act (SIS Act) and the Taxation Act.
The ATO, as the regulator of SMSFs, has comprehensive information on their website for new SMSFs to consider whether they have the time, knowledge, expertise and skills to run the fund effectively.
Within the 597,900 SMSFs registered in Australia, not all of those funds have a specialised SMSF savvy trustee at the helm. You can have assistance in managing the trustees’ responsibilities, however, the responsibility for meeting the trustee requirements of the SIS act cannot be outsourced.
Why is $500k the magic number for SMSFs?
There’s no minimum balance required to set up an SMSF. However, if you start with less than $500k, it may not be cost-effective. This is because on average, SMSFs below $500k have lower returns after fees when compared to regulated funds, as stated in the guidance provided by the Australian Securities & Investments Commission (ASIC). The actual amount required would be determined by seeking professional advice which is tailored to you.
The costs can vary from fund-to-fund and it can also depend on how much external assistance you need.
Some of the costs you’ll need to consider include:
- Corporate trustee expenses (setup costs/registration/tax returns)
- Independent auditing
- Tax returns
- Financial advice
- Legal fees
If you’ve received advice contrary to the above, you may benefit from booking an appointment with a BG Private Clients SMSF expert for a review.
An SMSF is as unique as the members within it
The reason why an SMSF might be right for others may not be relevant to you. There’s a lot more to consider than just the amount of money you have to invest.
Remain focused on achieving your financial goals. Watch and learn from the Banks Group experts as they share their insights on how you can plan and protect what’s important for you and your future.
Learn more about super here:
- SMSFs – Are they the right retirement planning vehicle for you?
- Four superannuation misconceptions debunked!
This article is intended for general discussion and is not intended to represent specific advice. BG Private Clients shall not be responsible for any entity that acts on any of the comments in this article without first obtaining specific advice from BG Private Clients. For further information, please click here.