{"id":2763,"date":"2018-02-06T09:56:16","date_gmt":"2018-02-05T22:56:16","guid":{"rendered":"https:\/\/www.martinco.com.au\/?page_id=2763"},"modified":"2018-02-06T09:56:49","modified_gmt":"2018-02-05T22:56:49","slug":"ebook-smsf-july-2017","status":"publish","type":"page","link":"https:\/\/www.martinco.com.au\/ebook-smsf-july-2017\/","title":{"rendered":"EBook – SMSF July 2017"},"content":{"rendered":"[vc_row type=”in_container” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”1\/1″][vc_column_text]\n

SMSF July 2017<\/h1>\n
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Introduction<\/h2>\n<\/header>\n

Superannuation, or \u2018super\u2019 as it is more often known, is a cornerstone of most people\u2019s personal financial management. Apart from their own home, for many people superannuation comprises their entire personal wealth. It is very important.<\/p>\n

Super is a long term savings arrangement designed to assist individuals to accumulate wealth to enable them to fund (at least some of) their own retirement. Becoming self-sufficient reduces people\u2019s reliance on government services such as the age pension.<\/p>\n

Many countries use some form of superannuation. Australia\u2019s current system of superannuation took form in 1983, when the then Hawke Labor government reached an \u2018Accord\u2019 with trade unions such that the unions agreed to forego direct pay increases in return for the introduction of compulsory super contributions for their members. Initially, employers were obliged to contribute an amount equal to 3% of their employees\u2019 salary or wages into a super fund on that employees\u2019 behalf. At a stroke, all affected workers started to save 3% of their annual income in a savings vehicle which could not be accessed until retirement. Compulsory saving for the future.<\/p>\n

The system was expanded in 1992 to cover all Australian employees. This system became known as the \u2018Superannuation Guarantee\u2019 and it is still in place today. The introduction of compulsory super came as demographic analysts realised that the Australian population was ageing and this would place a substantial strain on social security benefits paid by the Government (especially the old age pension).<\/p>\n

Originally, most superannuation funds were managed by professional money managers. Over time, a system through which people can manage their own superannuation has been developed. People manage their own superannuation through what is known as a self managed superannuation fund, or SMSF. As of December 2016, there were more than 585,000 self-managed superannuation funds with more than 1.1 million members. Together, these funds manage approximately one third of all superannuation assets in Australia.<\/p>\n

This guide is all about SMSFs. We explain what an SMSF is, who in SMSF suits, how to use in SMSF and how to finish up an SMSF when it is no longer needed.<\/p>\n

This guide is a starting point for self managed superannuation. If you have an SMSF, or if you are thinking of establishing one, we encourage you to get in touch with us. Running your own SMSF can be both personally and financially rewarding \u2013 but it needs to be done right and we can help you ensure that you make an intelligent and informed decision about whether and how to manage your own superannuation.<\/p>\n

We hope you enjoy this guide!<\/p>\n<\/article>\n

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Chapter 1: What is a SMSF?<\/h2>\n

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A SMSF is a special type of trust. A trust is a legal arrangement in which the legal ownership of an asset is separate to the beneficial ownership. The legal owner of an asset is responsible for it. For example, the legal owner of a bank account is responsible for any money saved within that bank account. The beneficial owner of an asset is the person for whose benefit that asset is maintained. For example, the beneficial owner of a bank account is the person for whose benefit any money held within that account is intended to be used.<\/p>\n

Most superannuation funds, both managed and self-managed, operate via a trust. Trustees are the legal owners of the trust assets. Fund members are the beneficial owners of those assets.<\/p>\n

There are many different kinds of trust. Many businesses, for example, operate through some form of trust, often using a company as the trustee. Private investors might make use of an investment trust. A testamentary trust is a trust that is created when a person dies and wishes to have their assets managed on behalf of their beneficiaries (for example, if their beneficiaries are still children and can\u2019t manage assets themselves).<\/p>\n

A self managed super fund is a special type of trust. It is special because the trust assets are held and managed by a trustee for the purpose of providing retirement income and other benefits to members. This means the trust qualifies for special income tax concessions under the tax law.<\/p>\n

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A SMSF is a super fund with less than five members that is managed by its members. SMSFs are also known as \u2018DIY funds.\u2019 The Australian Taxation Office (\u201cthe ATO\u201d) is the main SMSF regulator, and has the responsibility of overseeing SMSFs in Australia.<\/p>\n

The members, or a company owned and controlled by the members, act as the trustees. The trustees control the SMSF\u2019s investments and are generally responsible for the SMSF\u2019s administration and its compliance with the law.<\/p>\n

A SMSF is controlled by a trust deed. The trust deed sets out the rules the SMSF has to follow. It also sets out the obligations and responsibilities of the people connected to the SMSF, ie the members and the trustees. The rules for paying contributions on retirement or death, investing assets, holding meetings, appointing trustees, paying benefits to members and the other matters affecting the SMSF are also found in the trust deed.<\/p>\n

The three essential parts of a trust are present in a SMSF. These are:<\/p>\n

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  1. a trustee;<\/li>\n
  2. trust property; and<\/li>\n
  3. beneficiaries, in this case called \u201cmembers\u201d.<\/li>\n<\/ol>\n

    The trust deed must have special rules if the SMSF is to be a complying super fund and be eligible for tax concessions. However, it is the trustee\u2019s year-to-year conduct that ultimately determines the SMSF\u2019s eligibility for tax concessions.<\/p>\n

    To be a SMSF the fund must be a super fund and must also satisfy a number of conditions set out in section 17A of the SIS Act. These conditions are:<\/p>\n

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    1. the fund must have no more than four members;<\/li>\n
    2. if the trustees of the fund are individual persons, each of them must be a trustee;<\/li>\n
    3. if the trustee of the fund is a company, each member must be a director of that company;<\/li>\n
    4. the members are not in an employment relationship unless they are relatives;<\/li>\n
    5. no trustee derives any personal benefit from providing services to the fund or for performing his\/her\/its duties as a trustee.<\/li>\n<\/ol>\n

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      Chapter 2: Who\u2019s who in an SMSF<\/h2>\n

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      Members<\/h3>\n

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      People who use an SMSF to manage their super are known as members of that fund.<\/p>\n

      A person is a member of a fund if the trustee of the fund holds benefits on trust for them. The role is analogous to a beneficiary of a family trust, and a unit holder of a unit trust. The member is entitled to receive benefits from the SMSF on the occurrence of certain specified events, such as reaching a certain age, or dying (in which case the benefits are paid to the member\u2019s estate or dependants or a nominated person).<\/p>\n

      Most SMSFs only have two members. Often, these members are a couple, leading to the colloquial term \u2018mum and dad\u2019 funds. A minority will have members of another generation (i.e. children) as members too. It generally does not make sense for unrelated people to be members of the same SMSF. More commonly, two or more unrelated people will establish separate funds so as to keep their financial arrangements separate.<\/p>\n

      The most obvious distinction of a self managed superannuation fund, is that each member of the fund must also be a trustee of that fund. There are two ways to be a trustee: in one\u2019s own name, or as a director of a company where that company is the trustee of the fund. But in order to be a self managed superannuation fund, a member must have a managerial responsibility for the fund assets.<\/p>\n

      NO MORE THAN FOUR MEMBERS<\/h4>\n

      An SMSF can have no more than four members. The number of members is limited to four so that the SMSF cannot become too big. This rationale is not perfect, as obviously it is possible for a one member fund to hold more member benefits than a four member fund. But it does make some sense. It also means that individual SMSFs do not become too big, and that the members stay in control.<\/p>\n

      Many of the consumer protection type rules in the law do not apply to SMSFs. The rule that members must be trustees means that members will automatically have access to financial information and other information about the fund, and so a further layer of protective regulation is not necessary. This simplifies the costs of running SMSFs and makes them more accessible and workable. Increasing the number of members beyond four members would run contrary to this policy, making SMSF less workable, more expensive and more difficult to run.<\/p>\n

      There is some sense in the rule being relaxed so there can be more than four members if they are all part of the same family. This \u201csame surname\u201d approach is discussed in the industry from time to time but there is nothing to suggest it will become law at present.<\/p>\n

      SINGLE MEMBER FUNDS<\/h4>\n

      Under trust law, it is not possible for a person to be the trustee for himself or herself. This is because the separation of beneficial ownership and legal ownership of trust property is an essential aspect of a trust. If the same person holds both beneficial and legal ownership of a piece of property, then there is no trust.<\/p>\n

      This posed a problem for the legislature when the rules for self managed superannuation funds were being drafted: how can the \u2018all members must be trustees\u2019 rule be satisfied in the case of a single member fund? Two solutions were established:<\/p>\n

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      1. a sole director\/shareholder company can act as trustee, with the member as the sole director and shareholders (since this creates the necessary separation of beneficial ownership and legal ownership); or<\/li>\n
      2. another person can be a trustee \u2013 provided that other person is a relative.<\/li>\n<\/ol>\n

        A \u201crelative\u201d is defined widely and goes as far as second cousins, and includes relatives by marriage or adoption, de-facto spouses, and ex-spouses. \u201cSpouse\u201d includes a same sex partner.<\/p>\n

        MEMBERS WHO ARE ALSO EMPLOYEES<\/h4>\n

        A person cannot be a member of the same fund as his or her employer, unless they are related. This rule is intended to make sure that self-managed super funds do not become de-facto employer-sponsored funds, but without the extensive consumer protection type rules afforded to employees in these funds.<\/p>\n

        AUDITOR<\/h4>\n

        An auditor is a finance professional who checks that self managed super fund is being run in accordance with all relevant rules. These rules include both the trust deed for the individual SMSF as well as the general superannuation law.<\/p>\n

        In order to comply with the law, and therefore gain access to the various tax concessions available to an SMSF, an SMSF must engage a registered auditor who is independent of the fund. The Australian Tax Office have provided the following simple video to explain the role of an SMSF auditor:<\/p>\n