Find out about super

Self-managed super funds (SMSFs)

What is a self-managed super fund?

SMSFs are one way of saving for your retirement. The difference between other super funds and SMSFs is that SMSFs give people full control of their own super fund, including the added responsibility and workload associated with doing this. If you set up an SMSF, you are personally liable for all the decisions made by the fund, even if you get help from a professional or another member of the fund made the decision.

Is a self-managed super fund right for you?

Running your own super fund is complex, so SMSFs aren’t right for everyone. We suggest you seek advice but some of the things you need to consider are:

  • do you have enough money in superannuation to make set up and yearly running costs worthwhile? Ongoing expenses will include professional accounting, tax, audit, legal and financial advice
  • are you very knowledgeable about finance and aware of your legal obligations?
  • do you have a lot of spare time to research and check your super investments regularly and manage the fund?
  • do you have life insurance, including income protection and total and permanent disability cover?

How do self-managed super funds work?

To create your own super fund and manage it yourself, you have to follow strict Australian Taxation Office (ATO) rules.

These rules include that:

  • an SMSF currently can only have between one to four members
  • each member must be a trustee (or director if there is a corporate trustee) and has to carry out the role of trustee or director. This means each member has important legal duties
  • you can only use the money in the fund to provide retirement benefits
  • you can only create and follow an investment strategy that ensures the fund is likely to meet your retirement needs
  • you must keep comprehensive records and arrange an annual audit by an approved SMSF auditor.

Being a trustee means you have to take responsibility for everything you and your fellow trustees do in relation to the fund. If the SMSF fails to follow the rules, the ATO will fine the SMSF trustees, even if they are following the advice of an advisor. On top of substantial penalties, trustees may also have to rectify their mistakes, pay extra tax and complete an education course.

For more information, see the ATO’s Thinking about self-managed super webpage.

Things to think about before you create an SMSF

Before you set up an SMSF, it’s a good idea to double-check it’s the right thing for you. An important thing to know is that if your SMSF loses money due to theft or fraud, you do not have access to any compensation schemes.

Some other things to think about include:

  • do you have the right skills and knowledge? For example, will you be able to tailor your trust deed and investment strategy to suit the members of your SMSF? And will you be able to meet your super and tax-related record keeping, reporting and auditing obligations?
  • do you have enough time?
  • do you have enough money? To run an SMSF, you need to pay for the cost of investing, accounting and auditing for your SMSF, which may be much higher than other super funds’ fees. These costs mean you may have less money for your retirement.
  • will your self-managed fund have better investment results than your current fund? If you want to create an SMSF because you're not happy with your current super fund, you might want to think about changing to another fund or investment option first.
  • would other do-it-yourself super options be better for you? Some super funds offer do-it-yourself investment options that act in a similar way to SMSFs and let you choose which assets (such as shares, Exchange Traded Funds and term deposits) you'd like your super invested in. Do-it-yourself super options give you more control over your investments without the legal and administrative requirements of running an SMSF yourself.
  • will you be able to keep up to date with superannuation and tax laws?
  • would another super fund be better?
  • will you lose insurance cover? Most super funds offer members life and disability insurance, but if you have an SMSF, you will need to buy insurance separately and age and health issues may mean it’s hard to buy a new policy. It might also mean you need to pay more for insurance.
  • what if your relationship with other fund members changes? If your SMSF has more than one member, it’s a good idea to have a plan for what will happen if someone becomes ill, dies, loses interest or relationships end.

How to leave an SMSF

Leaving an SMSF is difficult so it’s a good idea to create a plan for leaving the fund so that you minimise the amount you have to pay and risks to the SMSF fund members' retirement savings.

To leave your SMSF you have to:

  • let the Australian Taxation Office know within 28 days
  • deal with all the assets of the fund so that the fund has no assets left
  • complete your reporting responsibilities
  • organise a final audit of your fund, including lodging your SMSF’s annual return and finalising any outstanding tax liabilities.

For more information, see the Australian Taxation Office's Winding up an SMSF page or get professional advice.

Scams

If you get SMSF advice, make sure you get it from an expert. Watch out for people who claim to be able to help you set up an SMSF to withdraw some of your super to pay off debts. These deals are illegal.

See ASIC’s Superannuation scams page for more information.