Understanding Self Managed Superannuation Funds

Transcription

1 Understanding Self Managed Superannuatin Funds Hw t read this dcument Managing yur finances t meet yur day t day requirements as well as yur lng-term gals can be a cmplex task. There are all srts f issues yu need t cnsider such as taxatin, legislatin, prtecting yur wealth and assets, assciated csts and the inherent risks f investment. When undertaking a financial plan it is imprtant that yu understand hw these issues will impact n yu and what yu shuld expect ver time. This dcument cntains general infrmatin abut the benefits, csts and risks assciated with certain prduct classes and strategies. It is designed fr use in cnjunctin with a Statement f Advice that takes int accunt the circumstances and bjectives f an individual. Befre making a cmmitment t purchase r sell a financial prduct, yu shuld ensure that yu have btained an individual Statement f Advice prepared by WARR HUNT Pty Ltd. As legislatin may change, yu shuld ensure yu have the mst recent versin f this dcument. Please cntact yur Adviser if yu d nt understand anything, r need further infrmatin r clarificatin. Surce and Acknwledgements This dcument has been prepared with the assistance f GWM Adviser Services Limited. Versin 1 February 2015

2 Self Managed Superannuatin Fr individuals seeking t wn direct investments within superannuatin r gain greater cntrl f their superannuatin prtfli, Self Managed Superannuatin Funds (SMSFs) can be an attractive alternative. SMSFs can facilitate all majr superannuatin functins including: accepting new superannuatin cntributins husing superannuatin funds received frm a change in emplyment, and paying a retirement incme. Cnsideratins in establishing SMSFs Members A SMSF must have between ne and fur members. N member is allwed t be an emplyee f anther member unless related. The sle purpse test T meet the sle purpse test, SMSFs must be established fr: benefits t members upn retirement, r death r ancillary benefits t members. The trustee f a regulated superannuatin fund must cmply with the sle purpse test t be eligible fr the taxatin cncessins available t a cmplying superannuatin fund. Investment guidelines Legislatin requires the trustees f SMSFs prepare and implement an investment strategy that includes the: risk/return prfile f selected investments in light f the investment hrizn diversificatin f fund assets liquidity f fund assets, and ability f the fund t meet current and prspective liabilities. This strategy must be dcumented, mnitred regularly and updated where required. In additin, a SMSF may nly purchase certain types f investments frm yu r an assciate. A fund can nly acquire the fllwing assets frm a member: shares listed in Australia r an apprved verseas stck exchange units in widely held unit trusts, and business real prperty used whlly fr any business purpse. The transfer f any ther assets may attract a penalty f imprisnment. Cst cnsideratins The csts assciated with establishing a SMSF may include: the preparatin f a trust deed including updates fllwing legislative changes in the event f a crprate trustee, the csts f establishing and using this framewrk the csts f using and establishing the administrative framewrk and, the accunting, audit and nging administratin f the fund WARR HUNT - Understanding SMSFs v1 Page 2

3 Establishing the trustee/s The trustee is respnsible fr cmpliance with a range f investment related requirements including: the investment strategy cvenant varius restrictins n investments and benefits including thse related t: lending t members r their relatives acquiring assets frm members r their relatives in-huse assets arms-length transactins brrwing by the fund member reprting bligatins cntributin standards, and benefit payments standards. While trustees may utsurce certain functins t external service prviders such as a fund administratr r an accuntant, the ultimate respnsibility and accuntability fr the fund always lies with the trustees. The trustee f a SMSF can be a crprate trustee (ie: a private cmpany) r individuals wh are members f the fund. Where the trustees are individuals, the trustee arrangements must be (subject t limited exceptins): all members must be trustees, and each individual trustee must be a member. This arrangement prmtes true self management f the fund by ensuring all the members have the pprtunity t be invlved in making decisins that directly affect their superannuatin. A SMSF may have a crprate trustee prviding: each directr f the cmpany is a member f the fund, and each member f the fund is a directr f the cmpany. Single member funds Where a SMSF has nly ne member, that persn may elect t have a crprate trustee. In this case, the member must: be the sle directr f the trustee cmpany r; there can nly be tw directrs f the trustee cmpany, hwever the single member: must nt be an emplyee f the ther directr f the trustee cmpany, r must be related t the ther directr f the trustee cmpany. Alternatively if the single member fund des nt wish t have a crprate trustee, the fund must have tw individuals as trustees. One f the individual trustees must be the member alng with: any ther persn prvided the member is nt an emplyee f that persn selected t be the ther individual trustee, r any ther persn wh is a relative f the member WARR HUNT - Understanding SMSFs v1 Page 3

4 Establishing a trust deed A trust deed is cmmnly referred t as the gverning rules f the fund. A trust deed is a legal dcument that establishes the existence f the fund and rules regarding its peratin when it is prperly executed. Trust deeds are available frm: a slicitr an accuntant, r a specialised SMSF service prvider The majr clauses f a trust deed will nrmally address: the establishment f the fund the structure and purpse f the fund details f wh can be a trustee hw t appint and remve trustees the decisin making pwers f the trustee wh can be a fund member wh can make cntributins when t pay benefits t members members benefit entitlements what investments the fund can make fund recrds, audit requirements, disclsure and reprting requirements, and the appintment f actuary, auditr and managers. Advantages f SMSFs Direct investment chice Yu can invest directly in yur wn chsen cmbinatin f investments, fr example, shares, prperty, fixed interest investments, managed funds and cash. Yu may als include business real prperty (cmmercial prperty). Access t whlesale managed funds Yu may gain the benefit f access t whlesale managed funds where the investment charges are lwer than retail managed funds. Cnslidatin Yu have the ability t have up t fur members in a SMSF. Yu are therefre able t cmbine yur superannuatin benefits int ne strategy t reduce nging csts and increase the ptential fr cmpunding capital grwth. Tax planning Yu have the ability t reduce taxatin liabilities within the fund by selecting a tax effective mix f investments, including franked dividends. Investment earnings are subject t tax at a maximum rate f 15%. Estate planning SMSFs prvide estate planning pprtunities where there is mre than ne member in the fund WARR HUNT - Understanding SMSFs v1 Page 4

5 A member f a SMSF is able t a have a nn-lapsing binding nminatin which allws them t specify hw their benefits are t be distributed n their death. Disadvantages f SMSFs Cst barriers A typical SMSF is expected t have nging csts in a range f $2,000 t $6,000 pa. The cst varies depending n the cmplexity f investments and level f utsurcing. Upfrnt csts in establishing the fund are estimated t be between $1,000 and $5,000. Legal and cmpliance bligatins Althugh as a member/ trustee, many respnsibilities can be utsurced, the ultimate respnsibility remains with the trustee. Nn cmpliance can result in fines and /r imprisnment. Expertise and perfrmance A high level f flexibility in investment chice requires sund knwledge and experience n behalf f the members/ trustees. Time cnsuming It is reasnable t expect a SMSF will take up a cnsiderable mre amunt f time fr the member than alternative superannuatin fund ffers. When are SMSFs apprpriate? A SMSF is mst apprpriate fr investrs wh: prefer t have direct cntrl ver their retirement funds wish t be invlved in investment decisins, and wish t gain frm the flexibility and estate planning benefits assciated with SMSFs. SMSF members must be prepared fr the respnsibilities assciated with being a trustee f a regulated superannuatin fund. Members wh are prepared t pay fr utsurcing much f the administratin and investment management f the fund will nt need t cmmit as much f their wn time t the fund but will need t be prepared t pay the assciated fees fr these services. What level f supprt is apprpriate? While all SMSFs feature direct investment discretin yu can chse the extent f administratin supprt, investment reprting and cmpliance. Bradly speaking yu may chse frm: a prfessinal administratin service fr all services required in cnjunctin with the use f a financial adviser fr investment decisins and ther key decisins such as cmmencing a pensin, cntributins t and withdrawals frm the fund, and an accunting firm fr cmpliance and tax returns in cnjunctin with the use f a financial adviser fr investment decisins and ther key decisins such as cmmencing a pensin, cntributin t and withdrawals frm the fund and then cmpleting the trustee respnsibilities yurself. Frm yur perspective, the majr difference between the these ptins is wh is respnsible fr the prudent management f the fund. The Superannuatin and Insurance Supervisin (SIS) legislatin cdifies sme f the mst imprtant fiduciary duties f trustees in frmal cvenants. The cdified duties exist alngside trustee duties under cmmn law. Fr trustees, SIS means their basic duties are clearly spelt ut. Fr members, SIS establishes statutry rights t civil actin fr lss r damage due t breach f cvenants WARR HUNT - Understanding SMSFs v1 Page 5

6 Additinal infrmatin Fr infrmatin regarding btaining persnal insurance within a SMSF, refer t ur Understanding insurance dcument. Fr infrmatin regarding brrwing by a SMSF fr investment purpses, refer t ur Understanding gearing dcument WARR HUNT - Understanding SMSFs v1 Page 6