You’ve been thinking about taking control of your retirement savings and setting up an SMSF. But are you member material? Find out here.
This article is published by Modoras Pty Ltd ABN 86 068 034 908
SMSF and You: Who can be a member of an SMSF?
If you’ve been considering heading down the SMSF path to manage your retirement savings, you wouldn’t be alone. There are now more than 1,000,000 Australians who are members of an SMSF.
But it’s not possible for everyone to become a member. SMSFs are highly regulated and there are specific requirements you must meet to be eligible.
We take a look at the required attributes of a member below and some other interesting points to consider when you’re thinking about setting up an SMSF.
Who can be a member?
Becoming a member of an SMSF relies on a person meeting several personal and legal factors.
- A person must willingly consent to be a member and accept the required responsibility
- They must also be in good financial standing which means:
- Not a disqualified person by SMSF regulators
- Not declared bankrupt
- Not have an employer/employee relationship with fellow member unless they are relatives
- Responsible for complying with superannuation legislation
Children under 18 or those with a legal disability can be members but they cannot be trustees, so this role is usually undertaken by a parent or guardian.
Does a member have to be a trustee?
In short, yes.
The requirement of establishing an SMSF, is all members must be a trustee of the SMSF and be willing and importantly able, to uphold the legislative requirements and responsibilities imposed on trustees.
Setting up an SMSF might give you full control over your retirement funds, but you are still required to adhere to superannuation legislation and meet all obligations and responsibilities. You may be subject to severe penalties and tax consequences if you fail to do so.
What about corporate trustees?
If your SMSF has a corporate trustee. If the SMSF has individual trustees, there must be a minimum of 2 trustees up to a maximum of 4, all of which must be member of the fund. Having a corporate trustee allows for one to four directors in the company, all of which must also be members of the fund.
SMSF does not mean DIY
If you’re still early in your journey of deciding whether an SMSF is right for you, you could be forgiven for thinking that an SMSF is just an alternative option for your superannuation to be contributed to a grow towards your retirement. However, it is anything but standard. You might get flexibility with your investment options, but you will be required to adhere to and fully understand and be responsible for Superannuation Industry Supervision Act (SIS act) and the Taxation act.
The ATO as the regulator of SMSF’s has a comprehensive bundle of information on their website for new SMSFs, these are comprehensive and set out among other things for potential trustees to consider whether they have the time, knowledge, expertise and skills to run the Fund effectively.
We would hazard a guess to say there are many people out there who would find it difficult to effectively run a super fund based on the guidelines as set out by the ATO as regulator.
With almost 600,000 SMSFs registered in Australia, we’re certain that not all of those funds have a specialised SMSF savvy trustee at the helm. You are able to have assistance in managing the trustees’ responsibilities, however the responsibility for meeting the trustee requirements of the SIS act cannot be outsourced.
A SMSF is likely to cost you much more than a standard super fund. The current accepted minimum for establishing an SMSF is $250,000.
Why is $250k the magic number for SMSFs?
This is not legislated as there is no set minimum amount required to start your own SMSF, if you start with less than $250k, it is likely the costs may outweigh the benefits. However, the actual amount required would be determined on a case by case basis.
The costs can vary from fund-to-fund and it can also depend on how much external assistance you need.
These are the costs you’ll need to consider:
- Corporate trustee expenses (setup costs/registration/tax returns)
- Independent auditing
- Tax returns
- Financial advice
- Legal fees
If you’ve been advised to start an SMSF and you have a balance lower than 250k, make sure there is relevant advice and evidence to support this recommendation. Or talk to us for a second opinion.
An SMSF is as unique as the members within it
We recommend an ‘eyes wide open’ approach when it comes to SMSFs. It’s not advisable to follow the crowd, because the reasons why an SMSF might be right for someone you know, may not be applicable to you. And there’s a lot more to consider than just the amount of money you have to invest.
We make super simple. If you want straight talk on SMSFs to find out whether it’s an option for you, contact us for a no obligation consultation.
Copyright Modoras 2018. All Rights Reserved.