Understanding self-managed superannuation funds
A self-managed superannuation fund (SMSF) is a private superannuation fund that allows individuals to take direct control of their retirement savings. Unlike industry and retail super funds, SMSFs are entirely self-managed, with members assuming responsibility for the fund’s operations and investment decisions.
An SMSF can have up to six members, and each member must also act as a trustee or, alternatively, as a director of a corporate trustee. This structure ensures that all members manage the fund and comply with legal obligations. Trustees oversee the fund’s investment strategy, ensure contributions and payments comply with the law, and manage all administrative duties.
SMSFs are regulated by the Australian Taxation Office (ATO), which oversees compliance with tax laws and superannuation regulations. While larger funds such as industry and retail funds are governed by the Australian Prudential Regulation Authority (APRA), SMSFs fall outside APRA’s jurisdiction. As a result, SMSF trustees must independently meet their legal and reporting obligations to the ATO.
Managing an SMSF requires high commitment, as trustees are directly accountable for the fund’s performance and compliance. This responsibility includes creating an investment strategy, keeping accurate records, and preparing financial reports, all of which demand a thorough understanding of superannuation laws and regulations.
Benefits of SMSFs
One of the main benefits of SMSFs is the ability to have greater control over investments, including access to a broader range of options not typically available through standard superannuation funds. This flexibility allows trustees to explore opportunities such as investing directly in property, provided the investment aligns with the fund’s goals and complies with superannuation laws.
Limited recourse borrowing arrangements (LRBAs) — also known as SMSF loans — are another significant attraction for SMSFs, particularly those interested in property investment. LRBAs allow an SMSF to borrow funds to purchase an asset, such as direct property, while limiting the lender’s recourse to the specific asset acquired with the loan. This arrangement enables SMSFs to leverage their existing superannuation balance to access higher-value investments, potentially enhancing long-term growth and diversification.
Despite this broader scope, SMSF investments are subject to strict rules. For example, property must be purchased solely for the benefit of the fund’s members in retirement and must not be used for personal or immediate family purposes. All investments must also comply with the fund’s investment strategy, which outlines how the trustees plan to achieve long-term objectives while balancing risk and return.
Who regulates SMSF compliance?
SMSFs are primarily regulated by the Australian Taxation Office (ATO), which oversees compliance with superannuation laws (such as the Superannuation Industry (Supervision) Act 1993), tax obligations, and administrative requirements. The ATO ensures that trustees act in the best interests of fund members and adhere to strict rules, including contribution caps, investment restrictions, and reporting obligations. Unlike industry and retail super funds, SMSFs are not regulated by the Australian Prudential Regulation Authority (APRA), which governs large-scale funds. Instead, the ATO focuses on helping trustees understand their responsibilities while enforcing penalties for breaches of superannuation laws. This regulatory framework emphasises trustee accountability and ensures SMSFs operate in line with their intended purpose of providing retirement benefits.
Compliance obligations and regulatory requirements
SMSFs are required to comply with all relevant superannuation and tax laws, including the provisions of the SIS Act. Trustees are legally obligated to prioritise compliance, even if it overrides the terms outlined in the trust deed. Ongoing obligations include:
- – Meeting regulatory requirements such as lodging annual returns.
- – Maintaining accurate records.
- – Ensuring the fund operates solely to provide retirement benefits.
Ongoing administration and record-keeping
Managing a complying SMSF involves time and effort, particularly with the ongoing administration and record-keeping required. Trustees must maintain accurate financial statements, lodge tax returns on time, and ensure compliance with all regulatory obligations. To make the admin easier, many SMSF trustees choose to outsource these tasks to specialised advisers and accountants, ensuring the fund operates efficiently and remains compliant with the law.
It’s important to note that to remain among other complying funds, an annual audit of the fund must be conducted by qualified SMSF auditors.
Suitable trustee structure
Choosing the right trustee structure is essential for an SMSF’s effective governance and long-term success. It’s important that the trustee structure aligns with the fund’s goals and objectives, as this will influence investment decisions, risk management, and compliance with regulatory requirements. Trustees should also consider seeking advice from a licensed financial adviser with SMSF expertise to ensure they make informed decisions about the structure that best suits their needs.
The main difference between a corporate trustee and an individual trustee lies in the structure and responsibility of managing the SMSF.
Individual trustee: In this setup, the SMSF is managed by members who are also trustees. Each member is personally responsible for managing the fund’s operations, including investments and compliance with regulations. For this structure, there must be at least two trustees, and each trustee must be a member of the fund.
Corporate trustee: With a corporate trustee, a company is appointed as the trustee of the SMSF, and the members of the SMSF are the directors of the company. The company is responsible for managing the fund, and the directors (members) oversee its operations. This structure simplifies administration because the fund doesn’t need to change when members leave or join, unlike individual trustees, where changes must be made each time a member joins or leaves the fund.
Investing in property inside a self-managed super fund
If you are considering investing in property within an SMSF but require financing, SMSF Loan Experts can help. We specialise in helping SMSF trustees navigate the complexities of securing a loan for property purchases, ensuring compliance with the strict SMSF loan rules. We can guide you through the process of applying for an LRBA, which allows the SMSF to borrow funds to purchase property inside super. We can also assist with evaluating and improving the fund’s borrowing capacity and selecting suitable loan products. If you’d like to learn more about SMSF loans, please get in touch with us today.
