Self-managed super fund (SMSF) - Moneysmart.gov.au (2024)

A self-managed super fund (SMSF) is a private super fund that you manage yourself. SMSFs are different to industry and retail super funds.

When you manage your own super, you put the money you would normally put in a retail or industry super fund into your own SMSF. You choose the investments and the insurance.

Your SMSF can have no more than six members. As a member, you are a trustee of the fund — or you can get a corporate trustee. In either case, you are responsible for the fund.

While having control over your own super can be appealing, it's a lot of work and comes with risks.

Only set up your own super fund if you're 100% committed and understand what's involved.

The risks and responsibilities of SMSFs

All members of an SMSF are responsible for the fund's decisions and for complying with the law.

These responsibilities come with risks:

If you lose money through theft or fraud, you won't have access to any special compensation schemes or to the Australian Financial Complaints Authority (AFCA).
You are personally liable for all the fund's decisions — even if you get help from a professional (such as a financial adviser, accountant or legal professional), or if another member made the decision.
Your investments may not bring the returns you expect.
You are responsible for managing the fund even if your circ*mstances change — for example, if you lose your job.
There may be a negative impact on your SMSF if there is a relationship breakdown between members, or if a member dies or becomes ill.
You could lose insurance if you're moving from an industry or retail super fund to an SMSF. See consolidating super funds.

The ATO has more information on the key responsibilities for SMSF trustees.

What's involved with an SMSF

The Australian Taxation Office (ATO) explains your responsibilities.

SMSFs take time and money

Managing an SMSF is a lot of work. Even if you get professional help, it's time-consuming.

You need enough time to set up the fund, and time to manage ongoing activities, such as:

researching investments
keeping up to date with changes in superannuation and tax laws
setting up and reviewing an investment strategy
accounting, keeping records, and arranging an audit each year by an approved SMSF auditor

SMSF trustees spend on average more than eight hours a month managing an SMSF. That's more than 100 hours a year. (Source: SMSF Investor Report, April 2021, Investment Trends)

Set-up costs

The set-up and running costs of an SMSF can be high. Ongoing costs can include:

investing
accounting
auditing
tax advice
legal advice
financial advice
insurance premiums

Some costs may be tax deductible, but most will be out-of-pocket expenses for the SMSF.

You don't have to set up an SMSF to choose your own investments. See super investment options.

You need financial and legal knowledge

You need the financial and legal knowledge and skills to:

set and manage an investment strategy that meets your risk-tolerance and retirement needs
comply with tax, super and investment laws
arrange insurance for fund members
understand different investment markets, and build and manage a diversified investment portfolio

Be wary of anyone who offers to set up an SMSF to withdraw your super to pay off debts. It's illegal. See superannuation scams.

SMSF starting balance

When making the decision to set up an SMSF, it's important to focus on the overall suitability rather than just the starting balance of the fund.

An SMSF with a lower starting balance may be suitable for you if, for example:

you are willing and able to do most of the administration and management of the SMSF yourself
a business property, an inheritance, or funds from another superannuation account will be added to your SMSF

There may also be circ*mstances when an SMSF with a higher starting balance is not suitable for you because it does not meet your objectives, financial situation or needs.

When a SMSF might be suitable for you

Some indicators that an SMSF might be suitable are:

you are willing to play an active part in managing your financial affairs
you have a good understanding of your role and responsibilities as an SMSF trustee
setting up an SMSF will help you achieve your goals and objectives, and
setting up an SMSF would be cost-effective for you.

The ATO has information about SMSF expenses by fund size.

If you want to set up an SMSF

If you are 100% sure about managing your own super fund, start researching investment options. Also consider getting advice from a licensed financial adviser.

Research your investment options

Part of the appeal of an SMSF is controlling and having access to a broader range of investments.

However, there are some very strict rules about what you can invest your super in. Check restrictions on investments on the ATO website.

Get professional advice

Professionals like SMSF auditors, accountants and lawyers can help you with an SMSF. However, these professionals may be limited to the kind of advice they can give you.

A licensed financial adviser with specialist SMSF knowledge can help you:

make an informed decision about whether an SMSF is right for you
set up and run your SMSF
decide on an appropriate trustee structure for your SMSF
understand the penalties for SMSF non-compliance

Financial advice about setting up an SMSF should always include information about:

why an SMSF is suitable for you and how it will help you achieve your retirement savings goals
the risk and costs
the potential benefits you may lose
your compliance responsibilities and any penalties for non-compliance
the skills, knowledge and time commitment you need

Set up your SMSF

All SMSFs are regulated by the ATO. The self-managed super funds section of the ATO website explains what you need to do to set up your fund.

How you structure your SMSF is also important as this can impact your compliance obligations.

There are two types of structures you can choose for your SMSF: individual trustees or a corporate trustee. The ATO has more information about the obligations for each structure.

It seems like you're exploring the world of Self-Managed Super Funds (SMSFs) in Australia. SMSFs are a unique way to manage your own superannuation with full control over investments and insurance. To demonstrate expertise in this area, I'll delve into key concepts integral to understanding SMSFs.

1. Self-Managed Super Fund (SMSF) Basics:

SMSFs are private super funds managed by members, providing control over investments and insurance.
They differ from industry and retail super funds, where individuals manage their contributions and choose investments.
An SMSF can have a maximum of six members, and members act as trustees or appoint a corporate trustee, bearing responsibility for fund management.

2. Risks and Responsibilities Associated with SMSFs:

Members are accountable for fund decisions and legal compliance, which carries inherent risks:
- Limited recourse if funds are lost due to theft/fraud without access to compensation schemes.
- Personal liability for all decisions made, even with professional advice or other member involvement.
- Investment returns might not meet expectations, impacting the fund's performance.
- Management responsibility persists despite personal life changes or unforeseen circ*mstances.
- Impact on the SMSF due to member relationship breakdown, death, or illness.
- Possible loss of insurance while transitioning from industry/retail funds.

3. Involvement and Commitment:

Highlighting the importance of a 100% commitment and thorough understanding before establishing an SMSF due to its complexity and risks.

4. Time and Financial Commitment:

Managing an SMSF demands significant time and monetary investments, including ongoing activities such as research, legal compliance, accounting, and audits.
The average time spent on managing an SMSF exceeds 100 hours annually, reflecting its intensive nature.
Initial setup and ongoing costs encompass various areas like investments, accounting, audits, tax, legal, financial advice, and insurance premiums.

5. Knowledge Requirements:

Necessary financial and legal acumen to:
- Develop and manage an investment strategy aligned with risk tolerance and retirement needs.
- Comply with taxation, superannuation, and investment laws.
- Arrange suitable insurance for fund members.
- Understand diverse investment markets and build a diversified portfolio.

6. Suitability of SMSF based on Balance and Objectives:

Deciding on an SMSF isn't solely dependent on the initial balance but on factors like administrative capability, additional funding sources, skills, and experience.
Indicators suggesting suitability include active participation in financial management, understanding trustee responsibilities, goal alignment, and cost-effectiveness.

7. Considerations for Setting up an SMSF:

Researching investment options while adhering to stringent investment rules and seeking professional advice for a broader understanding.
Importance of licensed financial advisers specialized in SMSFs for informed decision-making, setup, compliance, and risk understanding.

8. Compliance and ATO Regulations:

ATO oversight in regulating all SMSFs, detailing obligations and necessary structures—individual trustees or corporate trustee—with associated compliance responsibilities.

This overview should provide a comprehensive understanding of the nuances and critical aspects encompassing Self-Managed Super Funds in Australia.