A self managed super fund (SMSF) is a super fund that you manage yourself, unlike a standard retail or industry fund which is managed on your behalf. This guide will give you an initial overview of what an SMSF is, how an SMSF works and how it's different to a typical super fund. If you've already got an SMSF set up, we suggest you take a look at our guide on setting an investment strategy for your SMSF instead.
What is an SMSF?
An SMSF is a super fund that is managed by you and regulated by the Australian Tax Office (ATO). The purpose of the SMSF is the same as a typical super fund; to provide members money in retirement. SMSFs can have up to four members in the fund and members are often family members (although members don't need to be related at all). SMSFs come with the freedom and flexibility to invest your super however you want, though there are a number of costs involved and legal obligations to meet.
If you start an SMSF, you will be both a member of that fund as well as a trustee (unless you decide to appoint a company to act as your trustee – more on this in our SMSF trustee guide). As a trustee, you will have control over where your superannuation balance is invested and will be responsible for the day-to-day running of the fund. As a member you will benefit from the fund's investment performance and be able to use the money generated from the SMSF to help fund your retirement when you're no longer working.
Your employer will pay your super payments into your SMSF, then it's up to you to decide how you'd like to invest that money. When you're retired you can start to access the money generated by these investments to fund your lifestyle.
Finder survey: Would Australians consider setting up a self managed super fund?
Response
Female
Male
No
65.08%
63.86%
Yes
34.92%
36.14%
Source: Finder survey by Pure Profile of 1004 Australians, December 2023
Is an SMSF the right option for you?
While SMSFs offer great investment and tax benefits, they aren't the right option for everyone. There are a few things you must consider before setting one up, including the admin work that's required to maintain an SMSF, the various costs involved and the benefits and risks to consider.
An SMSF may be right for you if:
You have solid investment experience and have a good understanding of financial markets.
You want to invest your superannuation in less conservative options beyond shares and cash.
You want full control over where your superannuation is invested and are comfortable with a higher level of risk.
You have enough time to manage the fund.
You have some legal expertise and are confident you can meet all the legislative and tax compliance regulations set by the ATO.
You have a large superannuation balance.
SMSF rules, admin and compliance
There are many rules applied to SMSFs and how you can invest. Here are some basic rules you need to be aware of:
Your SMSF must have no more than 4 members.
Your SMSF must be registered in Australia with the ATO
Members cannot be employees of other members (unless they're related)
The SMSF must only be used to provide benefits to members in retirement
Your SMSF needs to have a set investment strategy that is documented, kept on file and continually reviewed.
The SMSF assets have to be kept separately from your personal or business investments and from those of the other members.
All investments made by the SMSF must pass the 'sole-purpose test', meaning the investments must be purely to provide retirement benefits to members.
Property investment made by the SMSF must follow the 'arms length' rule (you can't live in it or rent it to direct family members for cheaper rent)
Your SMSF must be audited by an approved SMSF auditor each financial year
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How to set up an SMSF
Here's how to set up an SMSF in 6 steps.
Step 1: Hire the professional support you need.
An accountant, tax agent or administrator will help set up the fund, manage its various accounts and finances and ensure you're meeting your reporting and admin obligations with the ATO. A legal practitioner can help set up your trust deed correctly (more on this in Step 3), and ensure your fund meets its ongoing legal requirements. You're not obliged to use a financial adviser but you might find it valuable to get professional advice regarding your SMSF's investment strategy.
Most importantly, you'll need to appoint an approved SMSF auditor to audit your fund each year. This is a requirement of all SMSFs.
Step 2: Decide your trustee structure.
In an individual trustee structure the SMSF assets are registered in the name of the individual trustees (the fund members themselves). However, with a corporate trustee structure the assets are registered under a company (who acts as the trustee), and the SMSF members act as directors.
An individual trustee structure is lower in management costs but has more admin. A corporate trustee structure is easier if the fund frequently changes members, as assets are held under the company name rather than the individual trustees' names.
You can read more about SMSF trustee structures and trustees' responsibility in our separate guide.
Step 3: Create and sign the trust deed and trustee declaration.
The trust deed is a legal document that outlines the rules of the fund, how it will be operated and lists all members. An accountant, administrator or tax agent must prepare the trust deed and ensure all SMSF members sign and date it. The trustee declaration is another document that highlights the responsibilities of all trustees as regulated by the ATO. Each SMSF trustee and director will sign their own declaration within 21 days to keep on file for a minimum of 10 years.
Step 4: Register your SMSF.
You must register your SMSF with the ATO within 60 days. You can register for an Australian Business Number (ABN) and Tax File Number (TFN), and elect the ATO to regulate your SMSF through the Australian Business Register. Once you register the SMSF with the ATO, you can register for an electronic service address. This is an Internet address for your SMSF that your fund administrator will provide you. You employer will use this address to send contributions to the fund.
Step 5: Open a bank account for your SMSF.
You need to open an SMSF bank account in your fund's name that is separate from all your members' personal bank accounts. This account is used for the fund's general cash flow, eg to pay any expenses or penalties, and receive investment returns such as rental income.
Step 6: Roll over your super balance (if you want to).
You can now roll over any existing super you might have with another super fund into your new SMSF. You aren't required to do this by law, but it's definitely a good idea so you're not paying multiple sets of fees across numerous funds. Simply fill in a 'Rollover Initiation Reques't form (available on your fund's website) that transfers your balance over into your new SMSF.
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How to close your self managed super fund
If one member of the SMSF wishes to leave the fund, they can do this at any time. The member will need to organise for their superannuation benefits to be rolled over to their new fund. If all members wish to close the SMSF, here are the necessary steps you should take:
All members agree. Make sure that all members agree to close the fund, and document this so you have a record, should you need it later.
Check the trust deed. The first thing you should do if you wish to close your SMSF is check the trust deed for any wind-up instructions and requirements.
Roll-over super. You will need to roll-over each member's super balance into another super fund. To do this, it may involve selling assets owned by the SMSF.
Final audit. You need to have a professional final audit completed by an approved SMSF auditor. They will check everything has been done correctly and let you know of any outstanding actions.
Lodge annual return. You need to lodge your SMSF annual return with the ATO and pay any outstanding tax liabilities.
Confirmation. When the ATO has checked you have met all your tax responsibilities you will receive a letter confirming that your SMSF has been closed and its ABN cancelled. You can now close your SMSF bank account.
Methodology
Our team of expert analysts employs an objective rating system to determine our award winners. All fund data is supplied to Finder by the leading super research firm, Chant West. Funds that were closed to the public or were private, as well as funds available only through a certain employer, were excluded from consideration.
The methodology for selecting top picks for SMSFs on Finder's website should encompass, but not be limited to, the following criteria:
Range of managed funds. Evaluate SMSFs based on the diversity and number of managed funds they offer. This factor is crucial as it allows investors to diversify their portfolios and cater to different investment strategies.
Research tools. Consider SMSFs that provide robust research tools. These can include in-built tables for tracking upcoming dividends, which are essential for informed decision-making.
Integrated financial accounts. Look for SMSFs that offer integrated financial accounts, such as a cash account, a superannuation account, and an SMSF account. This integration simplifies management and monitoring of different financial aspects.
Tax reporting capabilities. Prioritise SMSFs that have efficient tax reporting features. This functionality is vital for ease of managing tax obligations and ensuring compliance.
User experience: Assess the user experience offered by the SMSF. This includes the availability of services on various platforms like iOS, Android, and desktop, as well as features like PayID for easy and secure transactions.
Keep in mind that there are more features to consider, and these criteria serve as a foundational guide for selection.
How do contributions and rollovers work with an SMSF?
You can contribute to your SMSF by rolling over your current super balance into your new fund, having your employer contribute the super guarantee into your SMSF and/or make personal contributions yourself.
It's a good idea to roll over your current super balance into your SMSF, to save from paying multiple fees. You can easily do this online in less than 10 minutes. Plus, learn more about the benefits of making contributions to your SMSF.
Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds.
An SMSF service can help you establish your self-managed super fund, and assist with ongoing admin and management of the fund. Here are the pros and cons.
Learn how to develop a strong SMSF investment strategy and what assets you can and can't invest in. Want an SMSF investment property? There's a few things to consider first.
I have superannuation and I am the sole beneficiary. If in case I apply for an aged pension, does my fund payment be counted as an income and affect my eligibility?
Thanks for getting in touch with Finder. I hope all is well with you. 😃
It is worth noting that your superannuation is not considered by Centrelink until you become eligible for the age pension. For this reason, once your age pension kicks in, the value of the superannuation can be counted in both the assets and income test.
So, yes, your super will affect your eligibility for the aged pension. To know more information and get a more personalised answer, you may directly get in touch with Centrelink.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
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I have superannuation and I am the sole beneficiary. If in case I apply for an aged pension, does my fund payment be counted as an income and affect my eligibility?
Hi Johnny,
Thanks for getting in touch with Finder. I hope all is well with you. 😃
It is worth noting that your superannuation is not considered by Centrelink until you become eligible for the age pension. For this reason, once your age pension kicks in, the value of the superannuation can be counted in both the assets and income test.
So, yes, your super will affect your eligibility for the aged pension. To know more information and get a more personalised answer, you may directly get in touch with Centrelink.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua