Time to take control of your super?

Liz_M_headshot_WEB 2014By Liz Maroney, Westlawn Wealth Adviser
18 February 2014

The sooner you begin planning for retirement , the more time you’ll have to grow your super savings for living the lifestyle you want to enjoy in retirement.

And today, more Australians are choosing to include self managed super funds (SMSFs) in their retirement plans.

In fact, self managed super is now the most popular vehicle for saving for retirement in Australia with around one third of all money invested in super held within SMSFs according to the latest figures released by the Australian Taxation Office (ATO) in its quarterly Self Managed Super Fund Statistical Report – September 2013.

While an SMSF may not suit everyone, they do offer a number of benefits including:

1. More control: The fund assets are controlled by the trustees, who are also the members. The trustees are responsible for all decisions.

2. Pool resources with family: Up to four family members can pool their superannuation funds providing greater investment flexibility and reduced management fees.

3. Security: An SMSF offers flexible options for taking your benefits in retirement, whether as a lump sum or as a pension.

4. Choice: The trustees have absolute discretion regarding the choice and mode of investment. However, you need to manage your fund’s investments in the best interests of members and in accordance with the law. Investments must be separate from the personal and business affairs of fund members.

5. Fees: The SMSF fee structure may deliver substantial savings when compared with other retail superannuation funds, particularly as fund assets grow.

6. Flexibility: Trustees have the flexibility to make investment decisions with respect to changing market movements and options for retirement income streams. There is also the option to borrow to invest in certain assets within an SMSF.

 7. Protection: The fund assets of a member are generally protected from creditors in the event of bankruptcy (although some exceptions may apply).

With so many superannuation options available in the market, consult with your Wealth Adviser or Westlawn Business Services Accountant to discuss your individual needs.

Steps to setting up your SMSF

If you decide that an SMSF is the right move for taking control of your super, there are some crucial steps you’ll need to take when setting up your fund.

Deciding on a trust structure: SMSFs are a form of trust that holds assets on behalf of its members or beneficiaries. The funds can have a company or individual members act as trustees. To find out more, read Andrew Hayes’ article on Setting up an SMSF: Corporate or Individual trustee?

Appointing trustees: All trustees must sign a statement agreeing to act as trustees and stating that they understand the duties. Not everyone is eligible for this position. Individuals cannot be trustees if they are undischarged from bankruptcy proceedings, disqualified by a regulatory agency such as the ATO, subject to civil penalty under super legislation or convicted of a crime involving dishonesty. Companies do not qualify as trustees if they are insolvent or under administration.

The fund also must have a trust deed that sets out who can be a member, how benefits are paid and the fund’s objectives. This latter requires an investment strategy outlined in a written framework that complies with super legislation.

Establishing and maintaining the fund’s residency: Concessional tax treatment requires super funds to meet 3 conditions of residency:

1. The funds must be established in Australia or have assets in this country. Money in an Australian bank account satisfies this condition.

2. Central management and control (CM&C) must ordinarily be in Australia. CM&C is defined as strategic and high-level decision-making. It is located where the trustees perform the tasks, which include such activities as developing the fund’s investment strategy and reviewing the fund’s performance.

Supervising daily operations and performing administrative tasks are not considered CM&C. You may continue to satisfy this requirement even if you’re temporarily out of the country for as long as 2 years. Longer than that and the fund loses its concessional tax status.

3. At least 50% of the SMSF’s active members, measured by market value, must be in Australia.

For each year a fund fails to meet all 3 conditions, the ATO will include in the SMSF’s assessable income — and tax at the highest marginal rate — an amount equal to the market value of the fund’s assets.

Setting up an SMSF is complicated. Consult with your Westlawn Business Services Accountant or Westlawn Wealth Adviser. We can help you devise an investment strategy, prepare the fund’s accounts, annual financial position and operating statements, and lodge the annual tax return.

You may also want to pay a professional to administer the day-to-day operation of the fund, but keep in mind that you can never pass on the responsibility of being a trustee.

Copyright © 2014

General Advice Warning
The advice on this site may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial, tax and/or legal advice prior to acting on this information.

Westlawn Wealth Management Pty Ltd ABN 32 124 861 409, Authorised Representatives of GWM Adviser Services Limited ABN 96 002 071 749, Australian Financial Services Licensee, 105 -153 Miller Street North Sydney NSW 2060.