What is the sole purpose of a Superannuation Fund?

The object of the sole purpose test is to ensure that regulated superannuation funds are maintained for the purpose of providing benefits to fund members upon their retirement or their dependents, in the case of member’s death.

What are the benefits of a self-managed superannuation fund?

Some of the advantages of SMSF are

  • They have greater investment freedom
  • Members feel their monies are safer being invested by them as trustee
  • Members can actively participate in the management of the fund
  • There are reduced formal reporting requirements
  • They can be an advantageous investment vehicle for individuals considering tax and estate planning

Setting up a SMSF is not for everyone. People considering a SMSF must familiarize themselves with the requirements & obligations of running a fund.

What kind of investments can I hold in a Superannuation fund?

A key area of responsibility for trustees of SMSFs is investment management. SISA places certain duties and responsibilities on trustees when making investment decisions. They aim to protect and increase member benefits over time for retirement purposes.

SMSF Investment Strategy

Trustees are required to prepare and implement an investment strategy for the SMSF. The strategy must reflect the purpose and circumstances of the fund.

An appropriate investment strategy will set out the investment objectives of the fund and detail the investment methods the fund will adopt to achieve these objectives.

Trustees must make sure all investment decisions are made in accordance with the documented investment strategy of the fund and should seek investment advice or appoint an investment manager in writing if in any doubt.

Self-managed super fund rules

1. Investment rules

Investment rules are one of the most important requirements of SISA and failure to comply with the rules could result in trustees being fined and/ or the fund losing its compliance status.

2. Prohibition of loans/ financial assistance to members or a members’ relative

Trustees are prohibited from lending money or providing financial assistance from the fund to a member.

3. Prohibition of Borrowings

SMSFs are prohibited from borrowing money except in some limited circumstances.

4. Limitations on acquisition of assets from a related party

Trustees are prohibited from acquiring assets for the superannuation fund from a related party of the fund. Limited exceptions to this rule exist, if;

  • The asset is an in-house asset and would not result in the level of in-house assets of the fund exceeding 5% of the fund’s assets
  • The asset is a listed security eg. shares, units or bonds listed on an approved stock exchange
  • The asset is business real property

For more information on SMSF contact LCD&Co.

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