What is an SMSF?

A self-managed superannuation fund (SMSF) is a superannuation fund with no more than six members (increased from four members from 1 July 2021) that satisfies the requirements outlined in s17A SIS Act.

The SMSF sector emerged on 8 October 1999 from the former ‘excluded superannuation funds’, following a government’s inquiry into the Australian financial services industry known as the Wallis Inquiry.

An SMSF is a special type of trust created and managed in accordance with super laws. SMSFs have a unique trusteeship structure, under which (with very limited exceptions) all members must also be individual trustees or directors of a corporate trustee of the fund

The requirement that all members be trustees or directors means that all members have equal rights in the decision-making processes of the fund regardless of the proportion of benefits each member has, unless otherwise provided in the fund’s trust deed.

Because SMSF members/trustees are ultimately responsible for their own decisions and the adquacy of their retirement savings, they can choose how their super is invested and insurance cover that is right for them. They can also choose to be self-sufficient – ie, make their own investment decisions and attend to their SMSF’s administration and compliance obligation – or delegate some or all of these functions (but not responsibility) to service providers, such as accountants, administrators and/or financial planners.

SMSFs are regulated by the ATO and must comply with the SIS Act at all times to receive concessional tax treatment. SMSFs are subject to less onerous prudential regime under the SIS Act than the superannuation funds regulated by APRA.

Being an SMSF trustee carries specific and wide-ranging responsibilities and obligations that must be met on an ongoing basis. Some of the obligations are all-encompassing and take all surrounding circumstances of the fund in consideration rather than in isolation look at a particular decision made by a trustee. One example is the sole purpose test. Due to an SMSF being a trust, relevant state-based and common law applies as well.

Deciding to become an SMSF trustee is often a positive step towards retirement planning. It can prompt people to become more engaged with their retirement savings and boost their financial literacy and accountability.