| What is a Self-Managed Superannuation Fund (SMSF) or DIY Superannuation Fund? |
A Self Managed Superannuation Fund is a Superannuation Fund that is managed by you and regulated by the Australian Taxation Office (ATO). All the members of the fund must be trustee of the fund. |
| What is a Trustee? |
A Trustee is a person or a legal entity responsible for ensuring the fund is properly managed as described under the Superannuation Industry Supervision Act (SIS) 1993 and all other relevant laws are complied with.
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What are Trustees' Obligations? |
All members of self-managed super funds are trustees. They control the investment of their contributions and the payment of their benefits. As trustees, they are ultimately responsible for the running of their fund.
There are significant penalties imposed on trustees who fail to perform their duties adequately. Self-managed super funds must meet the sole purpose test under the SIS Act. |
What is the sole purpose test? |
All investments in a DIY Super Fund should satisfy the sole purpose test. Objective of the sole purpose test is to ensure that the primary purpose of maintaining superannuation funds is to provide retirement benefits to the members of the fund.
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Is Superannuation taxed at a higher or lower rate than my income? |
Lower. There are major tax concessions for all Australians to save in super. If you take maximum advantage you will have one of the lowest tax rates in the world on all your income. You get a tax deduction for a contribution, and if you have the right investments you may get a tax refund as well.
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| What is superannuation choice? |
New laws came into force on 1st July 2005 which will allow fund members to choose a fund of their own choice rather than one chosen by their employer.
Some employees in government or certain awards will not be eligible. |
How can I contribute to my DIY Super Fund? |
There are several ways you can contribute to your DIY Super Fund. These include:
- Tax deductible Contributions
- Salary sacrifice
- Undeducted contributions
- Spouse contributions
- CGT rollover relief
- Rolling over redundancy and bonus employer payments
- Rolling over funds previously accumulated in other funds.
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What is the difference between deducted and undeducted contributions? |
Deducted contributions are contributions paid to a superannuation fund, that an employer or self employer person has claimed a tax deduction for. Deducted contributions and subject 15% upon entry to a superannuation fund. Deducted contributions are also known concessional contributions.
Undeducted contributions are contributions paid to a superannuation fund where a tax deduction has not be claimed. Undeducted contributions are not subject to tax upon entry to a fund. Undeducted contributions are also known as non concessional contributions. |
How much super can I contribute? |
The below table sets out maximum contributions that can be made to super.
|
Age |
Concessional Contributions |
Non Concessional contributions |
< 50 |
50,000 |
150,000/450,000 |
>50 |
100,000 |
150,000/450,000 |
>50< 74 |
100,000 |
150,000 |
| >75 |
Nil |
Nil |
*Non concessional contributions can be brought forward, so that you can contribute 3 years (3*150,000) in one year. However, if you choose this option, you are unable to make further non concessional contributions until the 3 years is up. |
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Why should I contribute to super if I can’t get a tax deduction? |
Although you may not be eligible for a tax deduction for contributing to superannuation, there are several benefits of moving undeducted contributions into superannuation as follows:
- The earnings on superannuation are only subject to 15% tax. Individual tax rates can be as high as 46.5%;
- If you want or decided to retire before 60, the pension or lump sum you receive is concessionally taxed, based on the balance of your undeducted contributions;
- If you are deceased, and your superannuation is paid to a non dependent, the undeducted portion is not subject to tax upon payment.
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How much is the minimum my employer has to contribute |
The superannuation guarantee legislation requires all employers to provide super for their employees at a rate of 9% of their base salary and some termination payments. There is a special definition of Salary and some calculations are very complex. Some termination payments are also subject to Superannuation.
All contributions must be made to a complying super fund including DIY Super Funds and are tax deductible to the employer.
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If it is my Super, when can I get it? |
You may access your monies when you retire, unless you fulfil a condition of early release. If you are thinking of retiring before age 55, you may need to consider how to fund your income requirements until you can access your super.
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I am self-employed, is Super good for me? |
Superannuation is an excellent tax strategy for the self employed. Unlike salary and wage earners, self employed persons are able to claim a tax deduction for their superannuation contributions. Self employed persons are subject to individual marginal tax rates so deductions claimed against individual incomes derive a large tax benefit and are only subject to 15% upon entry to the superannuation fund. This is demonstrated as follows:
Individual tax rate 46.5%
Superfund tax rate 15%
Tax Saving 31.5%
If you are self-employed there is no one contributing Superannuation for you. It is up to you to fund your retirement. If you want to be self-funded retiree, it is essential to start a disciplined approach to prepare for your retirement.
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When do I retire? |
The minimum age when a retiree can access a preserved superannuation benefit is currently 55.
Minimum retirement age is determined by member's date of birth. Superannuation benefits are to be preserved until the preservation age as follows:
Date of birth |
Preservation age |
Before 1 July 1960 |
55 |
1 July 1960 - 30 June 1961 |
56 |
1 July 1961 - 30 June 1962 |
57 |
1 July 1962 - 30 June 1963 |
58 |
1 July 1963 - 30 June 1964 |
59 |
1 July 1964 or later |
60 |
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If I take my super as a lump sum how much tax I need to pay? |
When you turn 60 you will be able to take the money out and pay no tax. This means that the interest, dividends and rents you receive in your fund can be paid to you and you pay no tax. If you want to take your superannuation before age 60, it will be taxed concessionally depending on your level of undeducted contributions.
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How can you get refund of excess franking credits? |
The refund applies where a fund's total imputation credits attached to dividends exceeds the fund's income tax liability after taking into account any other tax offsets to which the fund is entitled.
Example
Franked Dividend |
$14,000 |
Franking credits |
$ 6,000 |
Interest & Other Income |
$ 2,000 |
Taxable Income |
$22,000 |
|
|
Tax @ 15% |
$ 3,300 |
Less: Franking credits |
$ (6,000) |
Tax Refundable |
$ (2,700) |
A fund with a strong income stream of franked dividends from Australian sources is very effective tax strategy. |
How much does it cost? |
As a guide, $1,000 plus GST to establish the Fund and between $1,500 - $3,000 per annum dependent upon the number of investments and transactions in the Fund.
These costs compare with more than $10,000 a year in a fund of $500,000 where fees are charged at say two per cent, as a percentage of the funds under management.
Our fees are based on time and professional responsibility. |
How do I invest the funds? |
Every fund needs an Investment strategy, which establishes the objectives and goals for the fund and provides an asset allocation policy for investment in stocks, bonds, property and cash.
The investment strategy will specify investment goals, liquidity of investments, income requirements, risk levels, and how the fund will be diversified |
Who can help me with investment advice? |
We do not provide investment advice. As a general rule we prefer a simple structure of stocks, bonds, property and cash, all income producing assets.
We do not recommend managed funds, which can be costly, tax inefficient, and illiquid. We prefer to see clients investing directly rather than through trusts or wrap accounts.
You should choose an adviser with a good track record of reliable advice and who will consistently protect and promote your fund's interests. |
What type of Investments is prohibited? |
Buy art as a fund investment and then hang it on your wall
Buy wine as a fund investment and then drink it
Buy jewellery as a fund investment and then wear it
Use any of the assets of your fund for your own personal use or allow members or related parties to use those assets. |
What are common breaches of the sole purpose test? |
Purchasing an investment that gives a benefit to a member or associate - the sole purpose test means that the members cannot enjoy a benefit from the investment before they retire.
Running a business within the fund - a possible indication that the sole purpose test has been breached is where a fund is running a business as part of its investment strategy.
Providing financial assistance or a benefit to a person or entity outside the fund. |
What are Auditors' obligations? |
Trustees of a self managed superannuation fund are required, each year or part year that the fund is in existence, to appoint an approved auditor to audit the operations of the fund.
The audit of a self managed super fund covers two areas: a compliance audit that assesses the fund's overall compliance with the SIS Act and regulations, and a financial audit to assess the fund's financial statements.
Trustees must provide the auditor with any relevant documentation requested to enable the auditor to finalise the audit. |
