Key takeaways
- An SMSF is a private superannuation fund with up to six members, where every member is a trustee.
- The fund exists for one purpose: to provide retirement benefits to its members.
- Trustees are legally responsible for the fund's decisions, investments and compliance, even when they use an accountant or adviser.
- The ATO regulates SMSFs, and an independent auditor must review the fund every year.
A self-managed super fund (SMSF) is a private superannuation fund that you set up and run for your own retirement. It does the same job as an industry or retail super fund, holding your retirement savings in a concessionally taxed environment, but you make the decisions rather than a large institution.
The defining feature is control. In an SMSF, the members and the trustees are the same people. You choose the investments, you keep the records, and you carry the legal responsibility for the fund complying with the rules.
How an SMSF is structured
An SMSF can have up to six members. Every member must be a trustee, or a director of a company that acts as trustee. This is what separates an SMSF from other funds: there is no external trustee making decisions on your behalf, so the people who benefit from the fund are the same people running it.
There are two trustee structures to choose from, individual trustees or a corporate trustee. The choice affects cost, administration and how easily members can be added or removed later. We cover the trade-offs in our guide to corporate versus individual trustees.
What an SMSF is for
An SMSF has a single legal purpose, known as the sole purpose test: providing retirement benefits to its members, or to their dependants if a member dies. Every decision the fund makes has to line up with that purpose. You cannot use fund assets for a present-day benefit, such as living in a property the fund owns or using fund money to prop up a business.
Who regulates SMSFs
The Australian Taxation Office (ATO) regulates SMSFs. The fund must register, lodge an annual return, and pass an independent audit each year by an approved SMSF auditor. The ATO's SMSF section sets out the trustee obligations in detail.
What being a trustee involves
Running your own fund is rewarding, but it is real responsibility. As trustee you must:
- keep the fund's money and assets separate from your own;
- set and follow a written investment strategy;
- keep accurate records and have financial statements prepared each year;
- arrange an independent annual audit and lodge the SMSF annual return; and
- make sure every decision meets the sole purpose test.
You can engage accountants, administrators and financial advisers to help, and most trustees do. The responsibility, though, always stays with you. That is the trade you make for control.
Frequently asked questions
- How many members can an SMSF have?
- An SMSF can have up to six members. Every member must be a trustee, or a director of the fund's corporate trustee.
- Do I have to be an investment expert to run an SMSF?
- No, but you do need to be engaged. Trustees set the investment strategy and make the final decisions. Many trustees work with an accountant for administration and a licensed adviser for investment and retirement strategy, while staying across the fund themselves.
- Is an SMSF taxed differently to other super funds?
- No. An SMSF is taxed under the same superannuation rules as other funds, generally at a concessional rate while you are building your balance, and potentially nil on earnings supporting a retirement pension. What differs is who makes the decisions, not the tax framework.
