super wealth, according to APRA and ATO statistics. Five years later, in 2003, SMSFs held 20 per cent of Australia’s superannuation money. Fast forward to late 2014, and the SMSF is now the leading category of super fund in Australia, with the 534,000 or so SMSFs in existence controlling around a third of the country’s super wealth.
As at June 2014, SMSFs controlled $557 billion of the $1.85 trillion or so held in super assets in Australia, according to statistics released by the ATO in September 2014. (In contrast, small APRA funds controlled a mere $2 billion of all super money.) Remarkably, this massive amount of money held in SMSFs is controlled by just over 4 per cent of Australia’s population; that is, just over 1 million DIY super trustees.
Satisfying the SMSF definition
A super fund must meet basic conditions to be considered a SMSF. If a DIY super fund doesn’t meet the basic requirements for a SMSF, it may be deemed to be a small APRA fund, which means it needs to have a professional trustee that holds an RSE licence (refer to ‘Take your pick – the ATO or APRA’ earlier in this chapter).
✔ Each member of a SMSF must also be a trustee of the fund, and all trustees must be members.
✔ No member of the fund can be an employee of another member unless they’re relatives, and a relative can include immediate family and extended family. A relative of a fund member includes a spouse, parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child. A relative also includes a spouse, including same-sex spouse, of any of these individuals defined earlier as a ‘relative’. For example, if you run a business and your brother is one of your employees, he can be a member of the fund. For more information on the meaning of relatives, see Chapter 8.
✔ None of the SMSF trustees can receive payment for performing the role of trustee.
If a super fund doesn’t meet these conditions, the ATO usually works with the trustees of the DIY super fund to help them meet the requirements of a SMSF. Alternatively, the ATO gives the trustees time to wind up the fund, or the opportunity to use a licensed trustee and move to APRA regulation. For more info on the rules applying to SMSF trustees, see Chapters 8 and 9.
Banking On Yourself, and Your CART
Becoming a DIY super trustee is all about steering your own super CART; that is, C-A-R-T – looking after your fund’s Compliance, Administration, Reporting and Tax management responsibilities.
CART is a term that I coined to help you, as a DIY super trustee, grasp the less glamorous aspects of running your own fund, namely:
✔ Creating a compliance culture: Get it right from the start. The superannuation rules create enormous opportunities without the need to put your retirement savings at risk by breaking those rules. I explain how you can set up a DIY super fund the right way in the chapters in Part II of this book, while in Chapter 11, I take you through the main areas of super compliance, including what I call the ATO’s seven deadly sins of DIY super.
✔ Getting active on administration: The biggest decision you need to make in terms of administration is whether you do it yourself or you delegate this task (but not the responsibility) to a professional administrator. In Chapter 10, I take you through what you need to consider when making such a decision, as well as what tasks are involved when administering a DIY super fund.
✔ Rigorous reporting reaps rewards: Are you punctual and particular with details? You need to possess both these traits as a DIY super trustee. Alternatively, you can appoint a service provider who can perform the reporting role for you. In Chapter 12, I explain the accounting records you need to keep, and what returns and forms you must lodge with the ATO. I also explain the important role performed by your fund’s auditor.
✔ Entering a tax-friendly world: Without doubt, the headline in super is ‘tax-free super for over-60s’, but that benefit isn’t the only good news on the tax front. I explain tax-friendly super contributions in Chapter 4, investing and super tax in Chapter 18, and super’s tax goodies in Chapter 13.
If you set up your fund properly (see Part II) and if you steer your CART in the right direction (see Part III), you can really enjoy your DIY super fund. You can then focus your attention on your fund’s investments (see Part IV).
It’s Your Super Money – Invest Wisely
Although investing your super monies can be very exciting and empowering, you must remember that you’re investing on behalf of someone else – yourself! Confused? Fully understandable, because, in a DIY super fund, you’re both the DIY super (SMSF) trustee and a SMSF member. In effect, you’re wearing two hats, which means you must be very careful to separate your responsibilities as trustee, from your entitlements as a fund member.
As trustee, you must set your fund’s investment strategy, and choose investments subject to special investment rules (see Chapter 15). In Chapter 14, I explain the importance of understanding risk and return when investing against the backdrop of the relatively recent Global Financial Crisis. I also explain the restrictions on borrowing money to invest (Chapter 16), and the rules applicable to property investing (Chapter 17).
Your Retirement Super Star
If
