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All about SMSF
An SMSF is a private super-annuation fund, regulated by the Australian Tax Office (ATO) where an individual who is a member of the fund can be the trustee of the fund. In simplified terms, you get to manage your fund as you are your fund’s trustee. A single fund can have up to 4 members where every member has to be a trustee or appoint a corporate entity as the trustee of the fund where the members are the entity’s directors.
The trustees are responsible for decisions made about the fund. They are responsible for annual compliance with the rules set up by the regulatory body which includes- up to date accounting, preparation of financial statements, lodging of returns etc.
Some FAQs on SMSFs answered
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Can an SMSF purchase shares in a private company?An SMSF is prohibited from acquiring assets from a related party. There are limited exceptions, including market listed shares, business real property or in-house assets (where the value of all in-house assets does not exceed 5% of total fund assets). If the private company is a related party of the SMSF, the purchase would be a prohibited acquisition and a breach of section 66 of the Superannuation Industry (Supervision) Act 1993 (SISA) would occur. Reference-https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/Questions-and-answers/
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Can you buy property in an SMSF?You can only buy property through your SMSF if you comply with the rules. The property:
- Must meet the 'sole purpose test' of solely providing retirement benefits to fund members
- Must not be acquired from a related party of a member
- Must not be lived in by a fund member or any fund members' related parties
- Must not be rented by a fund member or any fund members' related parties.
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Can you set up an SMSF with a corporate trustee?Under paragraph 19(3)(a) of the SISA, the trustee of the fund must be a constitutional corporation pursuant to a requirement contained in the governing rules. This means you need to set up a company incorporated under law and obtain a certificate of registration in order to have the company act as trustee of a fund. Registering a company incurs immediate costs and there is also an annual fee depending on the purpose of the fund. The company must be registered before the SMSF is established.
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Is it possible to have an SMSF with only one member?Yes. It is possible to have an SMSF with only one member. If the single member fund has a corporate trustee, the member must: • be the sole director of the trustee company; or • be related to the other director of the trustee company and there are only two directors of that company; or • not be an employee of the other director of the trustee company and there are only two directors of that company. If the single member fund does not have a corporate trustee, the fund must have two individuals as trustees. The member must be the trustee with: • another person who is a relative of the member; or • any other person provided the member is not an employee of that person.
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What are the pros and cons of individual trustees and corporate trustee?In most situations it will be better for an SMSF to have a corporate trustee, rather than individual trustees. The major disadvantage of a corporate trustee is the up-front cost of establishing the company. However, there are longer-term benefits of having a company which generally outweigh the extra costs. The following table looks at the advantages and disadvantages of a corporate trustee over an individual trustee:
CORPORATE TRUSTEE
INDIVIDUAL TRUSTEE
Sole member SMSF
Sole member SMSF
You can have an SMSF where one individual is both the sole member and the sole director.
A sole member SMSF must have two individual trustees.
Continuous succession
Ceases upon death
A company has an indefinite life span; in other words, it cannot die. Therefore, a corporate trustee can make control of a SMSF more certain in the circumstances of the death or incapacity of a member.
If the SMSF has individual trustees, e.g. a mum and dad SMSF, then timely action must be taken on the death of a member to ensure the trustee/member rules are satisfied (SMSF rules do not allow a sole individual trustee/member SMSF).
Lump sums and pensions
Lump sums only payable on commuting pension
An SMSF with a corporate trustee can pay benefits either as pensions or as lump sums.
The member must surrender their pension entitlement if they wish to obtain a lump sum (as an SMSF must have its primary purpose of paying a pension). You cannot simply pay a lump sum benefit as extra paperwork is needed to evidence the pension entitlement first being requested and then being surrendered.
Administrative efficiency
Extra and costly paperwork
When members are admitted to, or cease, membership of the SMSF, all that is required is that the person becomes, or ceases to be, a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, title to all the assets of the SMSF remains in the name of the corporate trustee.
To introduce a new member to an SMSF with individual trustees requires that person to become a trustee. As trust assets must be held in the names of the trustees, this will require the title to all assets to be transferred to the new trustees when a member is admitted to or exits the fund.
Greater asset protection
Less asset protection
As companies are subject to limited liability, a corporate trustee will provide greater protection where a party sues the trustee for damages.
If an individual trustee suffers any liability, the trustee’s personal assets may be exposed.
Estate planning flexibility
Extra administration and costs
A corporate trustee ensures greater flexibility for estate planning, as the trustee does not change as a result of the death of a member.
The death of a member requires there to be a change of trustee, and this gives rise to considerable administrative work and costs at an inopportune time.
Why OneStopSMSF over anybody else?
OneStopSMSF is a boutique accounting and financial services firm dedicated to catering exclusive SMSF services from setup to audit of funds. Almost a decade’s experience in extending premium customized services that are tailored to the needs of each client enables us to make your SMSF functions effective and powerful yet simple and easy to comprehend.