What is a Managed Fund?

A managed fund is a unit trust, which pools the money of different investors. This gives the individual investor the opportunity to invest in a wider range of assets, not normally accessible to retail individuals. With this pool of money, the Fund Manager will go and invest in property, shares, fixed interest and cash on the investors’ behalf, according to the type of portfolio they choose. Managed funds are also used by the retirement savings industry for superannuation and pension investments.

What is a SMSF?

A SMSF is a Self Managed Superannuation Fund for four or less members who are all related. A superannuation fund is a trust, in the same way as a family discretionary trust, or a unit trust. It simply has a limited and special purpose. You can run it yourself. With the assistance of your adviser, you 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. Legislation now requires all members of self-managed funds to be trustees of
the fund.

The structure of a self-managed fund is essentially the same as one managed by an institution. The major difference is that you are in total control of the investment strategy and specific investments within the fund.

Who can have a SMSF?

Almost anyone

  • Anyone who is under 70 years of age, employed for more than 10 hours a
  • week and earning income from that employment
  • Anyone who already has money in another superannuation fund or any other
  • form of rollover investment.
  • A non working spouse (under the age of 65 years old)

You could be:

  • An employee
  • Self Employed
  • A Director of a Private company
  • About to receive a retirement or redundancy package
  • Already retired with money in a rollover fund
  • Retired and already receiving a pension from a private superannuation plan

You cannot be:

  • Currently insolvent; or
  • Convicted of a dishonest act.

What are your retirement objectives?

A self-managed super fund may provide you with flexibility of benefits when you retire, such as combinations of lump sum and stream payments. It might also allow you to more efficiently optimise your taxation position on and during retirement.

Is a SMSF cost-effective to run?

It generally costs about 3% of a person's benefit each year to be a member of a master super fund. This needs to be compared with the cost of having an accountant administer your self-managed fund and complete an annual return for the fund. Ultimately, the fund’s complexity and its investments will determine the actual cost.

A SMSF is usually most cost effective when assets exceed $200,000. It is best suited to investors seeking maximum control and transparency and who are willing to accept responsibility of being trustee for their fund.

How much will your SMSF cost you to run?

The cost of setting up a Self-Managed Superannuation fund varies depending on the complexity of the implementation and the time involved. The compliance requirements will usually cost around $3,000 per annum, including the ATO superannuation supervisory levy. In comparison, managed superannuation funds can charge an annual management fee (MER) of up to 3%.

Is a SMSF the right choice for you?

Yes, if you prefer to maintain control over your investments rather than leave it in the hands of the institutions. You will however require the assistance and professional advice of an accredited adviser and your accountant to assist you to meet your trustee responsibilities and ensure your SMFS remains compliant at all times.

What are the responsibilities of the trustees?

Trustees of self managed superannuation funds are the ones who are ultimately responsible for the running of the fund. It is imperative that each trustee understands the duties, responsibilities and obligations of being a trustee. Before implementation of a self managed superannuation fund, we recommend you read a publication from the Australian Taxation Office entitled "Trustee Duties and Responsibilities". This is available from the ATO website by following the links to the superannuation main page.

Tax-effective Savings

Assets you might otherwise hold in your name (but not necessarily assets you currently hold) 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 margin rate plus the Medicare Levy (46.5 %).

Ongoing and Portable

Whether you're employed, self employed or both, a self managed superannuation fund is portable and can move from job to job with you. Your SMSF operates not only during your working life but in retirement and in the event of your death will continue to operate for your spouse and children.

Access to Alternative Investments

There is a tremendous array of different investment vehicles available for SMSF that are not used by institutional funds. These may allow some "quasigearing" in the fund to accelerate growth and greater variety of different investments. If you own a business then the SMSF may own the premises from which it operates.

Estate Planning

SMSF allows greater flexibility for the distribution of death benefits as this is usually at the discretion of the trustee.

What are the perceived disadvantages?

There are three main disadvantages comparing SMSF to mainstream alternatives.

1. 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 is required to prepare annual financial statements of accounts, conduct an audit, and lodge an annual income tax return for the fund.

2. Investment Advice
One of the major perceived disadvantages of SMSF is the need for you, the investor to make informed investment decisions. An accredited investment adviser should assist you to structure and implement an appropriate investment strategy, in accordance with the trust deed, and able to generate an appropriate rate of return for the members.

At Augeo, we believe that most people should be able to enhance their current and future position by adopting a properly structured lifestyle financial plan.

3. Strategic and Taxation Advice
When taking advantage of the tax planning flexibility of a SMSF, care must be taken to ensure that the fund does not step outside the limits imposed under the SIS Act.

If a SMSF loses its status the fund may lose its tax concessions and can incur hefty tax penalties. Qualified professional advice is strongly recommended to ensure your fund remains always compliant. A professional team made up of an investment adviser to help keep you informed with the latest investment opportunities and your accountant to provide you with expert advice on structuring proposed investments and tax planning issues should prove a safe and effective strategy to ensure you get the most out of your SMSF.

What can my SMSF invest in?

The SIS legislation gives you ample latitude to judge for yourself the merits of investment opportunities as they arise.

You can invest in literally anything you choose, provided it fits the fund's overall investment strategy and passes the "sole purpose test" within the legal guidelines.

The trustees (you) must still ensure that investments are made only after considering a number of questions including:

  • Is the investment for the sole purpose of providing for my retirement?
  • Is the investment consistent with my Investment Strategy?
  • Does the investment breach any of the Investment standards?

How do I establish a SMSF?

There are a number of steps that you must follow including:-

1. Establishment and purchase of a Trust Deed
2. Appointment of Trustees to the fund
3. Election to become a regulated fund
4. Obtain the necessary taxation registrations
5. Establish a Bank Account for the fund
6. Establish an Investment Strategy for the fund
7. Ensure ongoing compliance requirements are met each financial year

How can AUGEO help you manage your SMSF?

We offer a professional service giving you Control, Flexibility and Choice over your SMSF. 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 will also get timely and accurate information on the investments your fund holds. As well, you will have the flexibility to structure the fund to suit your personal circumstances, e.g. paying a pension.

Augeo will provide the investment research, expertise and knowledge to structure your investment strategy in accordance with your trust deed and to ensure your self-managed super fund remains compliant at all times by assisting you to perform your Trustee responsibilities successfully.

For more information or to discuss your Self-Managed Super Fund call us on 02 9884 8404 for a risk-free consultation.

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