Self Managed Superannuation Funds - Are they for you?

This is a general discussion about Self Managed Super Funds see also:

What is Super?

Super is a method of saving and investing money during your working life. This caters for your retirement. A Super Fund is set up by a Trust Deed. The Trust Deed contains the rules of the Fund. A trustee, who holds and invests the trust property on behalf of the members, administers it.

What is a SMSF?

A SMSF is a Self Managed Superannuation Fund. You run it yourself. You and your Advisers get to decide where and when to invest your funds. You get to take an active role in setting and implementing the investment strategy for the Fund.

How does a SMSF work?

For a start, you need four or less members. Members of the fund also have to be trustees of the fund. Trustees of the fund have to be members of the fund. Each member is forced to participate in the decision making process of your fund. To protect all members of your fund, no member can be the employee of another member. The only exception is members who are “related”.

Can you have a One Member SMSF?

Yes! But you have to have either: (1) a private company as a Trustee (known as a Corporate Trustee) or (2) a second Trustee (a natural person).

Which one do you want a Corporate Trustee or a Natural Person?

Corporate Trustees are expensive and complicated to run. Consult your Accountant and Adviser about the cost.

So, you don’t want a Corporate Trustee?

Your fund must then have another individual as trustee. That person must be a “relative” of yours or a any person who is not your employer.

Single member funds

It is possible to have a SMSF with only one member.

If the single member fund has a corporate trustee (eg Pty Ltd), the member must:

  • be the sole director of the trustee company; or
  • you can have a 2nd Director (provided that the Director is not your boss) and there are only the two of you as Directors of that company; or
  • your 2nd Director can be your boss provided that your 2nd Director is "related" to you and you two are the only directors of that company.

If the single member fund does not have a corporate trustee, the fund must have two individuals as trustees. You, as the member, must be trustee with:

  • any person who isn't your boss (you can't have your employer); or
  • you can have your boss as the 2nd Trustee - but your boss has to be related to you.

If Mum and Dad are members of the Fund, who are the Trustees?

The answer is simple: Mum and Dad. The members of SMSF are the trustees and the trustees are the members. If you and your spouse are already the sole trustees and are the sole members then, on the face of it, your SMSF complies with SIS regulations already. Well done. Stop reading now and go and have a glass of red wine.

If you have further questions, read on.

My Lotto Syndicate wants to begin a SMSF. Can we do it?

The question is how many people in your Lotto Syndicate want to join your SMSF?

You can’t have any more than four persons wanting to join. Four is the maximum number of members you can have in a SMSF. Also, there is a rule that if your boss is involved in your Lotto Syndicate, she cannot participate in your SMSF. Employees and employers cannot be involved in the same SMSF (unless they are "related").

What is an “employee”?

The definition of "employee" is very wide ranging. Consult your Adviser, Accountant or Tax Lawyer for a precise definition. In short, the aim of the rule against employee and employers (unless they are related) participating in the same fund is to make sure that all members of your fund are in a position to adequately look after their own interests.

Who is related to you?

Mum, dad, son, daughter, grandmother, grandfather, brother, sister, aunt, uncle, great-aunt, great-uncle, niece, nephew, first or second cousin of you or your spouse. Includes the above relationships by adoption or remarriage. Your ‘spouse’ includes your defacto spouse (living in sin, so to speak).


Your lover, boyfriend, girlfriend, mistress, barber, Adviser, Accountant and Tax Lawyer for a start.

Your eyes are beginning to glaze over. Don’t despair. Your Accountant, Adviser or Tax Lawyer have the jargon down pat. Give her a call to discuss your questions!!

My boyfriend is 17. I want him in my SMSF. Can he join?

Persons under 18 are considered legally disabled. This is fair enough when one considers that they weren’t allowed to vote for the government that introduced these changes. How disadvantaged can one get? For the purposes of Superannuation, persons legally disabled cannot be trustees of Superannuation funds. Your toy boy is under a “legal disadvantage” because he is under 18 years of age. He is a minor. If your toy boy has a “legal personal representative” then that person can be trustee.

Who is a “legal personal representative”?

An example of a legal personal representative is your toy boy’s wife. But, if he is not married, his legal personal representative is his Mum and Dad. If his Mum and Dad are dead, then his guardian can act as Trustee on his behalf.

According to the Australian Tax Office, a personal legal representative can also be a person who holds a Mutual Power of Attorney, a Cascading Power of Attorney or an Enduring Power of Attorney on behalf of another person.

Screen starting to go blurry again?

Don’t worry. Your Accountant, Adviser or Tax Lawyer understand these terms and are waiting for you to ask. Don’t be shy.

So in answer to your question, get the consent of his guardian or personal legal representative and the boy is in!! Of course, waiting until the boy (person concerned) becomes of age is one way around this. If you are dumped for a younger person, it may prove cheaper too!!

You are a member of SMSF and you die. What happens?

Well, chances are you will not need the proceeds of the SMSF anymore.

Do the surviving members of the SMSF take all your super?

No. Your personal legal representative is allowed to be a Trustee in your place until your Estate is paid out. So, unfortunately, for the surviving members of the SMSF, this does not mean that the survivors take all.

What about Directors of Corporate Trustees?

The same applies. If you are a deceased Director of a Corporate Trustee, your personal legal representative can act for you.

Example One: Lotto Luck

Four friends have been in a Lotto Syndicate for a number of years. One of them, Beryl read an article on the Internet about the advantages of investing in a SMSF. As all of them are rampant greenies they like the idea of being able to control the direction of their combined Superannuation funds. Are they eligible to have a SMSF?

Yes. Provided that all members of the SMSF are also trustees of the SMSF. But if one of the four employs another of the four then they cannot be members of the same SMSF. That is, there can be no Employee/ Employer relationships in SMSF.

Beryl’s lover Julie is jealous of Beryl’s involvement in the management of the fund. Julie wants to come on board. Can she?

No. SMSF are only for up to four members. The fund will cease to be a SMSF if the number of members increases to more than four.

Tamara (another member of the SMSF) overdoses on the good life and dies. Does this mean the fund is at an end?

No. Tamara’s legal personal representative can act as trustee until death benefits are distributed from the fund. The membership of the fund has now been reduced to three people. Julie can now join the fund, if she still wants to.

John is Beryl’s brother. He is also Beryl’s employee. Can he be a member of the fund?

Yes, as long as the total number of members is four or less. As he is a relative of Beryl’s it does not matter that he is also her employer. The fund still meets the definition of SMSF.

Example Two: Accounting for relationships

John and Julian are partners in an Accounting House. Through a service trust, John employs Julian. Can they be members of the same SMSF?

No. As John employs Julian, unless they are related, they cannot be members of the same SMSF.

Julian decides to start his own SMSF. His problem is he needs another Trustee. Can he employ someone to help him administer his SMSF?

No trustee is entitled to be paid for any services they perform other than be reimbursed for out of pocket expenses. This fits in with the government’s aim of keeping SMSF in the control of the individuals who are the members of the fund. Julian has to find a Trustee that does not expect payment.


You may not have to update your SMSF Deed. It may be OK if it complies with this:

  • With 2 - 4 members:
    • All members are trustees (or directors of the trustee company). There are no other trustees (or directors); and
    • No member can be an arms length employee of another member. This includes an entity (like a Unit Trust or company) in which another member has a specific interest.
  • With 1 member:
    • You must be one of 2 trustees (or the director of the Trustee company). The other trustee (or director) can't be your employer (unless related).

Note: Regulations ensure that unrelated directors of the employer-sponsor of a small fund are not deemed to be employees of one another.

Who can have a SMSF?

Anyone can have their own SMSF.

Is a SMSF for you?

Yes, if you prefer to maintain control over your investments rather than leave it in the hands of the institutions. Your Adviser and Accountant can help you. A Self Managed Super Fund provides you with:

Your Mistress or your Spouse - Who gets your Super when you die?

With SMSFs you can BIND the trustee. Most Super Funds don't give you this power. With most Super Funds you merely "suggest" to the Trustee of your Super Fund who the Super when you die.

Control, Flexibility and Choice

You get to decide where and when you invest the assets of your Fund – within reason and subject to the relevant legislation and your Trust Deed. You may get timelier and more accurate information on the investments your Fund holds. SMSF gives you the flexibility to structure the Fund to suit your personal circumstances, e.g. paying a pension.

Tax Effective Savings

Assets you might otherwise hold in your name can be held tax effectively as income and capital gains from a complying superannuation fund. Generally, this income and capital gain is taxed at a maximum rate of 15%, which compares favourably with the alternative of being taxed at the top marginal rate plus the Medicare levy (48.5%).

Ongoing and Portable

Whether you’re employed or self-employed, a self-managed superannuation fund is fully portable and can move from job to job with you. Civic Legal’ SMSFs operate not only during your lifetime but also that of your spouse and children.

Who pays the tax on my Super when I die?

Cost Savings

Ongoing fees may be lower than those for a commercial superannuation fund. Many of the costs are fixed and do not fluctuate with the size of the Fund.

What are the disadvantages?

There are three main roles fulfilled by the trustee of a Super Fund. You should consult your advisers on these areas:

  • Compliance and Reporting: Like most other trusts, the Super Fund needs to have annual financial statements prepared. Super Funds have additional reporting requirements under Superannuation legislation. Your Accountant can prepare these.

  • Investment Advice: Decisions are made on the investment mix of the Superannuation Fund so that it generates an appropriate rate of return for the members. This advice can be obtained from your Adviser.
  • Fund Managers are trained to invest your money. Have you got hours to spend each day looking at hedge funds and derivatives?

  • Legal Advice: When taking advantage of the tax planning flexibility of a Superannuation Fund, care must be taken to ensure that the Fund does not step outside the limits imposed on a Self Managed Super Fund. If a SMSF loses its status the Fund may lose its tax concessions.

Your professional advisers can help maintain your Fund. Many Accountants work with superannuation legislation and can fulfill the reporting requirements of your Fund. Alternatively, a number of firms have been established solely to administer self-managed funds. Your Adviser can keep you informed with the latest investment opportunities. A Lawyer practicing in the area of taxation and superannuation law can offer advice on structuring proposed investments and tax planning issues.

What does a SMSF cost?

Talk to your professional advisers about the costs involved in managing your own superannuation.

Often you need to have about $150,000 in Super and be prepared to spend $5,000 a year to make them work – however your Adviser is the person to help you in this area.

How do I set up my own SMSF?

We are available to answer legal superannuation questions from you and your Adviser. Consultations are available at $440 per hour. We can help you make the most of your Self-Managed Super Fund. Please phone our Practice Manager on 9460 5000 to make an appointment. Your Accountant, Adviser or Lawyer will need to refer you to us.

Alternatively, your Accountant, Adviser or Lawyer can order a Brett Davies Lawyers SMSF Deed via the Internet. Remember this only sets up the Deed. We only prepare the SMSF Deed via the instructions of your professional advisers.

Who drafts your SM Super Fund is important. Ask these questions:

  • Are you a tax lawyer working in the area of Superannuation?
  • Does your SMSF allow for both binding and non-binding nominations? Does it cater for bankruptcy?
  • Are allocated pensions allowed?
  • Have I got maximum flexibility so that my adviser and accountant and do what they want to do?

I want to update my SM Super Fund and I want Binding Nominations. What do I do?

Your next port of call should be your Adviser, Accountant or Tax Lawyer for advice that is specific to your needs. You can update your old SMSF for Binding Nominations over the web - right now.