Many people think that superannuation (super) is in itself an investment. This is not the case, super is a tax structure. You can think of it as an account into which money can be contributed, and invested on your behalf, and is taxed in a different manner. In this sense, your super fund is similar to a rain tank and your job is to fill it up for a rainy day “your retirement”.
Things that will empty your super tank:
- Bad investments
- High fees
- Tax
- Spending (in retirement)
The good news is that a superannuation fund can conceptually invest in any investment you like. It also offers more flexibility in managing tax, especially capital gains tax which can eat significantly into your retirement capital. However, to have this freedom, you must set up your own DIY or self-managed superannuation fund. This allows you to invest your superannuation money into:
- Cash or term deposits with any bank
- Corporate bonds
- Blue chip shares
- Property
- Collectables
- Gold
- Commodities or;
- Any other investments you want as long as this is allowed by the laws.
What is a self-managed super fund?
A Self-Managed Super Fund (SMSF) is a form of superannuation fund that offers members greater control over their retirement savings than any other superannuation funds. The member(s) of an SMSF decide where and how to invest the fund’s money. Theoretically, they can invest in anything they want as long as they do so only to provide so the fund is in a position to provide retirement benefits to its members in the future and not a current day benefit.
From a legal perspective however, a fund will only be permitted to considered as an SMSF if it satisfies the definitions of “self-managed superannuation fund” set out in SISA s 17A.
Under s 17A, a fund with between 2 and 6 members (inclusive) qualifies as an SMSF only if:
- the trustee/s of the fund are either all of the members as individuals, or a corporation with all of the members as the only directors
- none of the members are employees of any other member, unless they are related, and
- no trustee (or no director of a corporate trustee) of the fund is remunerated for their services in that capacity.
The requirements for a single member fund to qualify as an SMSF are similar, except that if the trustees of the fund are individuals, there must be two trustees (the member and a relative of the member) and if the fund is a corporation it must have one director (the member) or two directors (the member and a relative of the member).
A fund with more than 6 members may never qualify as an SMSF under the SIS Act.
SMSF housekeeping rules.
SMSFs are subject to regulation under the SIS Act by the Commissioner of Taxation, and members of SMSFs have full responsibility for the fund’s management, investment, and general administration functions, usually with the assistance of external service providers. We list below some of the general house keeping rules. Please note this is not an exhaustive list.
- No early access
- No provision of financial benefits to members or relatives
- No Lending to members or relatives
- Separation of assets
- No borrowing unless the loan is a limited course loan
- Limitations on overseas property access
- No acquisition of assets from members or related parties