Self managed super funds (SMSFs): What they are, how they work and how to set one up.

A self managed super fund (SMSF) gives you complete control over where your superannuation is invested. This guide outlines what an SMSF is, the obligations and responsibilities of SMSF members and includes a step-by-step guide on how to set up your own SMSF. You can also compare a range of dedicated SMSF cash accounts.

What is a self managed super fund?

Like the name suggests, a self-managed super fund is a super fund that you manage yourself, unlike a retail or industry fund which is managed on your behalf. The purpose of the SMSF is to provide members (you plus up to three others) money in retirement.

SMSFs explained

Find out what an SMSF is, how it works and how it differs from a retail or industry super fund. Find out the factors you need to consider when determining if an SMSF is the right option for you.

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Is an SMSF the right option for you?

While SMSFs offer great investment and tax benefits, they aren't the right option for everyone. There are a few things you must consider before setting one up, including the admin work that's required to maintain an SMSF, the various costs involved and the benefits and risks to consider.

SMSF administration and compliance

This guide provides a summary of the main things your SMSF needs to do to meet its legal and compliance obligations with the ATO.

SMSF setup costs

Read this guide to take a closer look at how much it costs to run an SMSF and how much money you need to invest to make it a viable option for your retirement savings.

Benefits of an SMSF

This guide breaks down the major benefits of SMSFs as well as the risks to consider when deciding if an SMSF is the right option for you.

Ready to set up your own SMSF?

Running an SMSF requires support from a variety of people, but they're not as daunting to set up as you might think. We've broken it down with a six-step process that will have you setting up your very own SMSF in no time. As part of the process, you'll also need to plan a clear investment strategy and choose a trustee structure. Read our comprehensive guides to lean how to do this in simple steps.

How to set up an SMSF in six steps

This guide breaks down all the steps you'll need to take to get the job done, including tips on choosing trustees, registering your SMSF and more.

How to plan your SMSF investment strategy

Find out how to effectively plan and set up your investment strategy, what you can invest in through your SMSF and all the factors you need to consider.

SMSF trustee structure

Learn about the two different types of SMSF trustee structures, decide which one is right for you and better understand your duties and obligations as an SMSF trustee.

How do contributions and rollovers work with an SMSF?

You can contribute to your SMSF by rolling over your current super balance into your new fund, having your employer contribute the super guarantee into your SMSF and/or make personal contributions yourself.

How to roll over your super

It's a good idea to roll over your current super balance into your SMSF, to save from paying multiple fees. You can easily do this online in less than 10 minutes. Plus, learn more about the benefits of making contributions to your SMSF.

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• The tax benefits of having an SMSF

  Superannuation is basically a tax structure to help Australians save for retirement, so there are tax benefits to any superannuation fund. Superannuation is generally taxed at the lower rate of 15%, much less than the standard tax rate you pay which is likely to be between 32.5% and 45% depending on your income.

  You can gain a tax benefit by contributing to your SMSF through concessional contributions. This includes having your employer pay the compulsory super guarantee (9.5% p.a of your salary) into your SMSF, to be taxed at the concessional rate of 15%. You can also elect to add salary sacrifice contributions to your SMSF. This means that a portion of your pre-tax income will be added into your SMSF and charged the concessional tax rate of 15%, as opposed to the full tax rate. But remember, this is currently capped at $25,000 per year.

  The most popular way SMSFs reduce the amount of tax they pay is by buying shares through the SMSF that are fully franked. This means that when you receive your dividends or interest payments, the public company has already paid the corporate tax bill of 30%, so you will receive a franking credit. As the tax rate for your SMSF is only 15%, you can use the franking credit to then claim this difference in tax as a deduction, reducing the amount of tax your SMSF is required to pay and potentially resulting in a tax refund.

  Big retail or industry super funds can also invest in fully franked shares. However, as you are in control of your investments with an SMSF you can choose to invest a much larger percentage of your balance this way.

• Recent changes to self managed super funds in 2017

  There were many changes to superannuation legislation which took effect from July 2017. Some of the key changes that affect SMSFs include but are not limited to:

  • The annual limit for concessional contributions has been lowered from $30,000 to $25,000, and the annual limit for non-concessional contributions (after-tax) is now $100,000
  • If you earn over $250,000 your concessional super contributions will be taxed at 30% instead of the standard 15%. This has been reduced from $300,000
  • The cost of penalties for SMSF trustees who break the rules or are non-compliant has increased
  • If you earn under $37,000, the ATO will refund the tax you paid on super contributions (even the compulsory super paid by your employer). This is capped at $500 a year
  • The age from which you’re eligible to start receiving your aged pension began increasing from July 2017. Previously 65, it will slowly increase and reach age 67 by 2023

• How to close your self managed super fund

  If one member of the SMSF wishes to leave the fund, they can do this at any time. The member will need to organise for their superannuation benefits to be rolled over to their new fund. If all members wish to close the SMSF, here are the necessary steps you should take:

  1. All members agree. Make sure that all members agree to close the fund, and document this so you have a record, should you need it later.
  2. Check the trust deed. The first thing you should do if you wish to close your SMSF is check the trust deed for any wind-up instructions and requirements.
  3. Roll-over super. You will need to roll-over each member's super balance into another super fund. To do this, it may involve selling assets owned by the SMSF.
  4. Final audit. You need to have a professional final audit completed by an approved SMSF auditor. They will check everything has been done correctly and let you know of any outstanding actions.
  5. Lodge annual return. You need to lodge your SMSF annual return with the ATO and pay any outstanding tax liabilities.
  6. Confirmation. When the ATO has checked you have met all your tax responsibilities you will receive a letter confirming that your SMSF has been closed and its ABN cancelled. You can now close your SMSF bank account.

• Compare different types of super funds

  If you're not ready for the commitment required to manage your own super, you can consider the following alternatives for your super needs:

  Super fund type	Description
  MySuper	Under Australian law, most employers are required to offer a MySuper-type fund as a default option for people who cannot (or don’t wish to) select their own fund. These are generally found as defaults, but you may also nominate a MySuper fund. It’s designed to be a safe option for most Australians, and is characterised by: Low fees Opt-out life insurance Straightforward investment options All-around simplicity
  Retail funds	Widely-available commercial products, operated by financial institutions to turn a profit for themselves and their customers. These will typically be nominated, rather than selected as a default. Retail funds can vary widely, but are often characterised by: Offers of competitive returns A wide range of options May be integrated with other financial products May give customers more in-depth control of investments Are often owned by banks
  Industry funds	These superannuation funds are generally designed for workers in a specific industry, and may be especially beneficial. Some industry funds are restricted to workers in a specific industry, while others are open to everyone. Industry super funds will often be available as a default, or might be nominated. Sometimes a super fund will be both an industry fund, as well as a MySuper fund. The key difference between these funds and retail funds is that they are owned by members not shareholders. They can vary widely, but are often characterised by: Lower fees A range of insurance options Differing investment options Varying degrees of simplicity
  Corporate funds	These are super funds a business offers to its employees. They might be exceptionally competitive, such as in the case of defined benefit funds. Naturally these will typically be found as default funds with various advantages and features.
  Self-managed super fund (SMSF)	The do-it-yourself super fund. You are responsible for investing your superannuation, as well as looking after the tax and legal obligations that go along with it. These are explained in more detail in this guide.