Running your own SMSF takes a much more responsibility than belonging to a large super fund that is run by a institution, as with self-managing you are in charge of the decision making. This includes the administration, reporting, tax decisions, following regulations, and investment decisions. If you belong to a large super fund, someone else is in charge of those matters, and you would not have to risk the financial penalties that can come from amateur mistakes (which will often come out of personal savings rather than SMSF savings). Let’s discuss a few things to keep in mind that you must be aware of when running your own SMSF.
Firstly, do your research. Understanding the rules, guidelines, and the superannuation laws will minimise the margin of error, and leave you with greater peace of mind. Do not be afraid to ask for advice if an area of the law is confusing, and feel free to delegate some of the tasks if it becomes too much to keep up with. However, keep in mind that you are in control of the SMSF, so be certain to understand your responsibilities and obligations.
Secondly, take a look at the SMSF trustee declaration (which is a document all new trustees have to sign). In the declaration, you signed under the section that you will not receive any benefits from the fund before retirement (or at the point of a certain age) or if one of the beneficiaries dies. Not following that part of the declaration can result in severe consequences, so be sure to revisit it from time to time and make sure that you are not receiving any current benefits from your SMSF.
Something else you should revisit from time to time will be the trust deed. In the deed, it states your responsibilities as a trustee. If you fail to follow the deed, penalties often follow, which is outlined in the Superannuation Industry (Supervision) Act 1993. The Superannuation Industry Act is the main governing power when it comes to these funds, so keep that in mind for future reference. Alongside the act there is also the Superannuation Industry (Supervision) Regulations 1994, that contains rules on contribution, investment, benefit payment, and administrative obligations. Contribution rules include that a member over the age of 65 has to pass a work test before offering contributions. Investment rules must be satisfied, and will be discussed later. Within benefit payment rules, a SMSF member has to satisfy a condition of release before having access to preserved super benefits, nor can they violate any other rules of payment in regards to a lump sum of their pension. And within administrative obligations, it is imperative to keep up-to-date on records, meetings minutes, taxes, transactions, amongst other things. If it becomes difficult to manage all of the administrative duties yourself, then hiring someone as an assistant could be very useful.
In order to keep your SMSF moving forward, forming an investment strategy is very important, and this is not only a suggestion, but a law that is demanded by the SIS Act. Within the SIS Act, there are several things to consider for your strategy, including investment objectives, investing across a large range of assets (which is known as diversification, so that not all of your finances are tied to one area of the market), the liquidity of your fund (which is defined by the fund’s ability to transfer money to pay things like taxes and expenses), and the likely projection of current investments. Reviewing the strategy every so often is also helpful, and perhaps necessary in order to move forward. When you are making individual investments, take a look at the trustee declaration to be sure that you are complying with the rules it states. Those include making sure the fund meets the sole purpose test, keep your personal money separate from the assets that the fund invests in, don’t lend money to other members or relatives of members (or any other type of financial help), don’t purchase assets from members (unless they are securities, business real property or managed funds), don’t borrow money on behalf of the SMSF (although there are a few exceptions), and make sure that no more than 5% of the fund’s total assets are in-house assets. In-house assets are defined as being loans or investments in parties that are associated with the fund, or a lease arrangement with parties associated with the fund.
To keep the SMSF running smoothly, hire an approved auditor every year, and they will then provide the trustees with an audit report, make sure that the auditor has been approved as a SMSF auditor, which is detailed in the SIS Act. Also, you must lodge tax and compliance returns every year with the Australian Taxation Office. Remember that with the returns, a fee of $259 is required, and remember to pay this fee in advance in order to minimise any issues. Lastly, to avoid any other confusion or issues with the SMSF, be absolutely sure that you keep personal finances away from the fund, and that you manage your business affairs as separate from the SMSF. When you are a trustee of a SMSF you are leading the finances of the fund for yourself and on behalf of the members, so act accordingly in a responsible manner.
If there are anymore questions, please consult an advisor who will give you professional counsel. Doing so regularly will decrease the amount of mistakes you make, thus maximising the returns you receive. Even if you decide to take full control of the SMSF, and you don’t even delegate any of the tasks of the fund, consider that advice may help set the course of your fund, and help you with developing your investment strategy by seeking advice at the beginning and throughout your experience. Please don’t engage it just any odd resource relating to SMSFs, but listen to qualified people and read reputable sources, while proceeding with caution of the things you might find online (if searching online for related articles, try to find some that have been peer-reviewed). Seeking an actual person who has had years of experience in investing may be preferable over individual research, although that is needed as well in order to learn from the investing experience.