Out in Front by Miles: SMSFs the Black Caviar of DIY

30/04/2013

As at June 2012 there were 478,263 Self Managed Superannuation Funds according to the Annual Superannuation Bulletin released by the Australia Prudential Regulation Authority.  A significant amount particularly when compared to the number of Small APRA Funds which at the same time numbered only 3,201.


Considering that Small APRA Funds (SAFs) are another version of a DIY Fund, the contrast in numbers between these and SMSFs indicate that the majority of people are directing their super investments into the latter of these two.


Since 2004 the number of SMSFs has experienced a boom, while during the same period the number of SAFs has more than halved.  The Annual Superannuation Bulletin reported that in the 2012 financial year 376 individual SAFs were either wound up or transferred their benefits to another regulator, while only 58 new funds were established.


But what really is the difference between these two types of Funds that appears to make one so much more appealing than the other? The table below breaks down the key differences between these two types of DIY Funds.

                                   

SMSF

         Small APRA Fund
Who regulates the Fund?     Australian Taxation Office         Australian Prudential Regulation Authority
                 
Maximum Number of Members     4         4(may increase to more than 4 members, but the Fund would cease to be a SAF)
               

 
Who is the Trustee?     Fund Members         A Licensed Trustee
                 
Investment Control     Yes         Yes, subject to the Trustee’s approval
                 
Who is responsible for Fund Compliance     Trustee/Members         The Licenced Trustee
                 
Does the Trustee Get Paid?     No         Yes
                 
What is the Annual Supervisory Levy?     $200         $500
                 
Can a Member live overseas and still operate the Fund?     No – as central management and control of the SMSF must be in Australia         Yes – as long as they are Australian residents for tax purposes
                 
Can a Person who is bankrupt or disqualified be a member?     No – as members must also act as Trustees         Yes – as the member is not required to act as a Trustee
                 
Ability of members to choose what assets to invest in?     Yes – subject to the regulations of the Superannuation Industry (Supervision) Act 1993 (Cth)         Additional restrictions on investments may be imposed by the Licenced Trustee and some assets may not be allowed to be purchased or held by the SAF
                 

 

While there are some benefits to using a SAF, such as when members are unable to act as Trustee or are concerned about the level of responsibility, the ultimate control over the investments of the fund appears to be more valued by those entering the DIY market.  In addition the fees payable to the  Trustee of the SAF make it a considerably more expensive option.
 
 
For investors  who engage a good accountant, financial planner and lawyer for assistance to navigate those tricky administrative and compliance areas, the SMSF can be a powerful structure in which to save for their retirement.
 
For further information, please call Townsends Business & Corporate Lawyers on (02) 8296 6222
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