DIY SUPERANNUATION
In the 1998 Federal Budget, the Government announced a new category of superannuation - DIY superannuation, or otherwise known as a self-managed super fund (SMFS). Like all superannuation funds, DIY superannuation is there to provide for you in retirement. As at July 2007, there were around 300,000 self managed super funds in Australia representing approximately 560,000 Australians. The major benefits of DIY superannuation are that it gives a person(s) greater control over their investments, as well as enabling them to manage their tax more effectively.
Like other superannuation funds, DIY superannuation is governed by rules and regulations relating to acceptance of contributions and preservation. These rules are designed to ensure your savings are maintained and continue to grow until your retirement, but also allow you some control over the investment decisions. It is the job of the Australian Tax Office to monitor and enforce these rules and regulations. Below are some key points to setting up a self-managed super fund.
Benefits of superannuation
The major benefit of DIY superannuation is that it enables participants to have greater control over their investments. Providing they abide by certain rules, trustee's can invest in shares directly or even property. The tax implications are also of benefit as in enables trustees to invest through their SMSF and therefore be entitled to the tax breaks of this structure that they would not normally be able to benefit from. Another possible benefit is the potential to reduce costs in DIY superannuation against that of a publicly offered fund.
It is important to note that DIY superannuation will not suit everyone. It is a fairly large responsibility, with the nominated trustee required to ensure the fund is run in accordance with all the rules and regulations. In some cases, the benefits may not outweigh the requirements.
Who can participate in DIY superannuation?
A SMSF can be set up by;
- A single person
- Family members (less than 5)
- Up to four individuals, provided that they are not employees of another member of the fund.
There are three basic steps that need to be followed in order to set up a DIY superannuation fund.
- Decide which type of structure will be used (corporate or individual).
- Prepare the trust deed and have it executed have it executed by the relevant parties.
- Arrange for members to be admitted to the fund and respective contributions to be made.
The trust must then appoint a trustee.
To view the rules and regulations relating to DIY superannuation click here.
Investment requirements
The main investment requirements for DIY superannuation are outlined below;
- Investments must be in line with the fund's investment strategy
It is a requirement that a SMSF has a written investment strategy in place. All investments must be made in accordance with this strategy. The strategy may be altered over time upon the agreement of the trusts members.
- Investments must be at arm's length
No party may owe or give concessions to an investment that any normal person would be entitled to. Transactions must occur at market value.
- Cannot lend to, nor provide financial assistance to members and relatives
- A fund cannot borrow
Funds cannot borrow except to meet short term liquidity requirements, in which case the fund can borrow up to 10% of its total assets.
- Cannot acquire assets from a related party
There are certain situations whereby exceptions can be made to this last rule.
For more information on DIY superannuation, please click here.