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When it comes to the time to withdraw super fund benefits, it is possible to get all your money out and pay no tax.  Again there are rules as to when and how you can get your money, but the best result is a tax free retirement.  Compliance rules are a little complex, but with some help you can maximise your money quite easily.

The super in your fund is intended for your members’ retirement and generally can’t be accessed until then.

Preserved and non-preserved benefits

Most of the super held in your fund will be in the form of preserved benefits. These must be preserved in the fund until the time the law and your fund’s trust deed allows them to be paid.

Preservation age

Preservation age is generally the age that a person can access their super benefits once a condition of release has been met. It ranges from 55 to 60 years of age depending on the person’s date of birth.

Conditions of release

Voluntary cashing of preserved benefits generally depends on the member reaching their preservation age and meeting one of the conditions of release – for example, retirement.

Compulsory cashing of benefits is required only if a member dies. Your member’s benefits need to be paid out as soon as possible after the member’s death.

Early access to benefits

There are a few conditions of release that allow early access to super benefits before a member reaches their preservation age, but these occur only in limited circumstances, such as terminal illness or permanent incapacity.

How you get your benefits

Payment of benefits is usually as a lump sum or an income stream (that is, a pension).

The SMSF tax regime is feature not to be missed. My favourite tax rate (0%) can apply in many cases.  But with these concessions comes a need to comply with rules.  Get it right and get the rewards!

SMSFs are subject to income tax but receive concessional treatment if they are complying funds. A complying SMSF’s taxable income is generally taxed at a rate of 15%, compared with 45% for a non-complying fund.

The most common types of assessable income for complying SMSFs are:

• assessable contributions
• interest, dividends and rent
• net capital gains.

However, certain types of SMSF income are taxed at different rates:

• non-arm’s length income is taxed at 45%
• no-TFN contributions are taxed at 46.5%
• current pension income is exempt from tax ie 0%

A complying SMSF is entitled to claim deductions for expenses, such as the supervisory levy and auditor fees, that are incurred in gaining or producing assessable income.

SMSFs must register for GST if they have a GST turnover of $75,000 or more. Most SMSFs don’t have this much GST turnover and so don’t need to register but often an SMSF chooses to register.

Many people prefer an SMSF to have control of investments.  But what can an SMSF invest in?  Investments such as term deposits, shares, property and managed funds are common place, but what of more exotic investments.  What is allowed?  Many SMSFs look at buying property even their business’ premises.  There are rules around what you can buy and from whom you can buy it from.  getting it right is important for many reasons.

So, one of your key responsibilities as a trustee is managing your fund’s investments. Your investment decisions should be designed to protect and increase your benefits for retirement. Here are some tips on investing Super fund money without breaking the rules.

Your best strategy in investing Super fund money

You invest according to your written investment strategy. This sets out your fund’s investment objectives and how you plan to achieve them. It takes into account the personal circumstances of all the fund members, including their age and risk tolerance. Regularly reviewing your investment strategy will help you maintain the right mix of investments for your fund and its members.

Restrictions on investments

Being a trustee of an SMSF gives you the flexibility to choose the investments for your fund, but there are some restrictions on how you invest and what you can invest in. Make your investments on a commercial ‘arm’s length’ basis and do not buy assets from or lend money to fund members (or other related parties). Generally, your fund cannot borrow money.

Ownership and protection of assets

You need to manage your fund’s investments separately from the personal or business investments of members, including your own. This includes ensuring that the fund has clear ownership of its investment assets.

Sole purpose test

The fund’s investments are for the sole purpose of providing retirement benefits to members – there cannot be any pre-retirement benefits to members or related parties (such as letting members use an investment asset).

Investing in the unusual – artwork, collectables and personal-use assets

Since 1 July 2011, all collectables and personal-use assets purchased by SMSFs have to comply with tightened rules.

Can you put money into super?  Is there a difference between personal contributions and employer contributions?  How much can you put in? What happens if I put in too much?  These super fund contribution rules are complex and if you get it wrong you may pay 93% tax on the contribution!

It sounds a little complex, but a contribution is a payment made to your fund in the form of money or an asset other than money (called an in specie contribution). So it’s when you put money or assets into the fund. Provided the governing rules of your fund allow it, your SMSF can generally accept:

• employer contributions
• personal contributions
• salary sacrifice contributions
• super co-contributions
• eligible spouse contributions.

You need to properly document contributions and rollovers – including the amount, type and breakdown of components – and allocate them to the fund members’ accounts within 28 days of the end of the month in which you received them.

Allowable contributions

There are minimum standards for accepting contributions. Whether a contribution is allowable depends on:

• the type of contribution – for example, you can accept mandated employer contributions, such as super guarantee contributions from a member’s employer, at any time
• the age of the member – for example, you cannot accept non-mandated contributions from members aged 75 or over
• whether the member quotes their TFN
• whether the contribution exceeds the member’s fund-capped contributions limit.

We have further information in our resources section.

These are minimum standards – the trust deed of your fund may have more rules around accepting contributions.

In specie contributions

In specie contributions are contributions to your fund in the form of an asset rather than money or cash.  Often these contributions are shares owned by the members.  However,  be aware of the rules around what assets can be transfererd in.

Rollovers and transfers

A rollover is when a member transfers some or all of their existing super to your fund.

Setting up a SMSF is easy. If anything it can be done too easily with no real thought of consequences.  It pays to get it done right, right from the outset. You need to step through a process on how to set up a Super fund correctly and there are decisions to be made as part of this process. Trustees, Members, Trust Deed, Rules just to name a few.

Is SMSF for You?

Like other super funds, SMSFs are a way of saving for your retirement. Generally, the main difference between an SMSF and other types of funds is that members of an SMSF are the trustees. This means the members of the SMSF run it for their own benefit.

SMSFs are not suitable for everyone, and you should think carefully before deciding to set one up. It is a major financial decision and you need to have the time and skills to do it. There may be other, better options for your super savings.

Establishing your SMSF

If you decide that an SMSF is the appropriate vehicle for your savings, you need to ensure the fund is set up and maintained correctly so that it is eligible for tax concessions, can pay benefits, and is as easy as possible to administer.

Once your SMSF is established you, as trustee, control the investment of the contributions and fund earnings. Your SMSF must have a trust deed that forms part of the governing rules for operating the fund. You must also prepare and implement an investment strategy and ensure it is reviewed regularly. There are rules and regulations that you must follow to ensure the fund’s assets are protected to provide benefits in retirement.

Your obligations as a trustee

Make sure you understand the responsibilities and obligations of trustees operating an SMSF.

When one or more members retire you, as a trustee need to understand and follow the law and regulations governing the payment of benefits. The payment standards contained in the legislation and regulations, the sole purpose test and the preservation rules ensure that money in the fund is paid to members in the appropriate manner.

You should continually reassess the circumstances of the fund and each individual member to determine whether an SMSF is still the most appropriate option for your retirement savings. In some cases, you may find that you no longer have the capacity to deal with the complexity or the time required to manage your SMSF.

You may decide that it is not cost-effective to continue to run your own fund. Depending on the circumstances, it may be necessary to transfer member benefits to another complying super fund.