Client Services
Frequently Asked Questions:
Super
DIY Super
- What is a SMSF?
- Who can be a member of a self managed super fund?
- What are the trustee responsibilities?
- What super rules must a trustee follow?
- What is the ‘Sole Purpose’ test?
- What types of contributions can a SMSF accept and who can make them?
- What are the trustee’s responsibilities when managing the fund’s investments?
- What types of investments can a SMSF make?
- When can members access their super?
- How are SMSFs taxed?
- Where can I find more information about SMSFs?
- What SMSF investment options does Vanguard offer?
Personal Super
- Can I choose my own super fund?
- How much can I contribute to super?
- What are the different types of contributions?
- How do I qualify for the Government co-contribution?
- How do I find my lost super?
- How do I consolidate my super?
- When can I access my super?
- What happens to my super if I die?
DIY Super
What is a SMSF?
SMSF stands for self managed super fund. SMSFs are super funds set up by individuals or a group of less than five people. SMSFs must meet a number of requirements, including:
- have a trust deed that meets the requirements of the Superannuation Industry (Superannuation) Act 1993 (SIS Act)
- members cannot be employees of other members of the fund unless related
- trustees cannot receive any remuneration for their services
- all members must be trustees or, if the trustee is a company, all fund members must be directors of the trustee company
- only members can be trustees or directors of the trustee company
SMSFs with only one member have slightly different rules.
Who can be a member of a self managed super fund?
Most people can set up their own SMSF for their superannuation guarantee and personal contributions. Employees who are not eligible for super choice may only be able to use an SMSF for personal contributions.
You cannot be a member of a SMSF if you:
- are under 18 years old
- have criminal convictions relating to dishonest behaviour
- are an undischarged bankrupt
- have committed a serious breach of the SIS Act
What are the trustee responsibilities?
SMSF trustees are legally responsible for all decisions concerning the fund. Part of your responsibility as trustee is to ensure you understand the rules governing your fund and to keep abreast of any legislative changes. Other responsibilities include:
- acting honestly in all matters concerning the fund
- exercising the same degree of care, skill and diligence as an ordinary person
- acting in the best interest of fund members
- retaining control over the fund
- keeping money and assets of the fund separate from other monies or assets
- developing and implementing an investment strategy
- providing members with access to certain information, such as the financial situation of the fund
Administrative responsibilities include:
- keeping accurate and accessible accounts for the fund. Accounts must detail the financial position of the fund and its transactions and must be kept for at least five years
- preparing an annual operating statement and annual statement of the fund's financial position, which must also be kept for at least five years
- maintaining minutes of all trustee meetings and recording any changes to the trustees along with each member's agreement to act as a trustee. Each of these documents must be kept for 10 years
- retaining copies of all annual returns lodged for a period of 10 years
- retaining copies of all reports given to members for 10 years
- reporting all contributions made to the ATO by specified dates each year
What super rules must a trustee follow?
Trustees must comply with the Superannuation Industry (Superannuation) Act 1993 (SIS Act). The Australian Taxation Office (ATO) regulates SMSFs to ensure they comply with these rules and regulations.
What is the ‘Sole Purpose’ test?
SMSFs can only invest in assets that meet the sole purpose test, which means they must be for the core purpose of providing benefits for retirement. This means trustees cannot derive any current day benefit from assets purchased.
SMSFs are also allowed to provide benefits for ancillary purposes such as financial hardship or compassionate grounds subject to super rules and regulations.
What types of contributions can a SMSF accept and who can make them?
SMSFs can accept concessional contributions and non-concessional contributions.
Mandated employer contributions include:
- superannuation guarantee contributions
- employer contributions above SG or award obligations
- superannuation guarantee shortfall components
- award-related contributions
- certain payments from superannuation holding accounts special account
- self employed personal contributions (that a tax deduction has been claimed)
- salary sacrificed contributions
Concessional contributions are those that a tax deduction has been or will be claimed for those contributions.
Concessional contributions can be accepted for members at any time regardless of their age and number of hours worked.
Non-concessional contributions include:
- superannuation guarantee contributions
- employee personal contributions
- self-employed personal contributions (where no tax deduction has been claimed)
- other personal contributions and spouse contributions
There are limits on the types of non-concessional contributions an SMSF can accept.
- For members under 65 you can accept non-concessional contributions where they have quoted their tax file number
- For members between 65 and 69 you can accept non-concessional contributions if the member is gainfully employed (worked at least 40 hours within a period of 30 consecutive days in the current financial year), or non-concessional contributions if the member has quoted their tax file number
- For members between 70 and 75 you can accept employer or member contributions if the member is gainfully employed, or member contributions if the member has quoted their TFN or the contribution is received on or before 28 days after the end of the month the member turns 75. You cannot accept spouse or voluntary employer contributions
- For members 75 and over you cannot accept any non-concessional contributions
More on contribution types and limits
What are the trustee’s responsibilities when managing the fund’s investments?
All SMSF trustees must prepare an investment objective for their fund and implement an investment strategy to achieve it. The investment strategy must reflect the fund's purpose and circumstances and detail how it will:
- maximise member returns within an acceptable level of risk
- diversify across a range of assets (for example, shares, property, fixed interest)
- pay benefits and costs as required
- meet member needs taking into account individual ages, income levels, employment and retirement needs
Other responsibilities include:
- invest according to their investment strategy
- ensuring investments meet the sole purposes test
- make investments that will generate income for retirement
- keep all records concerning investment decisions for 10 years
- dealing on an ‘arms length’ basis
- obtain accurate market valuations of the fund’s assets
- secure the fund’s assets
What types of investments can a SMSF make?
All investments must meet the sole purposes test.
SMSFs can invest in traditional assets such as shares, property, bonds and cash as well as more complex financial instruments such as options and certain kinds of warrants.
While superannuation law doesn’t stipulate what an SMSF can and can’t invest in, there are restrictions on the entities a fund can invest in and acquire assets from. For example, SMSF’s cannot:
- acquire assets from a related party
- allow in-house assets (such as a loan, investment or lease of a fund asset to a related party) to exceed five per cent of total assets
- borrow money except in limited circumstances
It is best to seek professional advice if you are considering investing in more complex or non-traditional investments.
When can members access their super?
Members can access their super benefit tax-free at the age of 60 as a lump sum or pension.
Members who want to access their super as a lump sum or commutable retirement income stream will need to be retired and of preservation age. A commutable income stream provides the flexibility to convert an income stream into a lump sum at a later date.
Your preservation age depends on your date of birth.
| Your date of birth | Your preservation age |
|---|---|
| Before July 1960 | 55 |
| July 1960 to June 1961 | 56 |
| July 1961to June 1962 | 57 |
| July 1962 to June 1963 | 58 |
| July 1963 to June 1964 | 59 |
| After June 1964 | 60 |
If you are between 55 and 60 you can ease yourself into retirement under the Government’s transition to retirement rules. This way you can continue working full or part time while drawing an income from your super.
How are SMSFs taxed?
There are three levels of taxation on SMSFs.
Contributions tax
If the money paid into your super has not already been taxed, it will attract a 15 per cent tax on the way into the fund (known as concessional or salary sacrifice contributions). There is no contributions tax if your money has already been taxed (called non-concessional contributions).
Tax on earnings
- The income you earn on your investments within your SMSF is taxed at a maximum rate of 15 per cent while in the accumulation phase. Capital gains are also subject to income tax.
When an SMSF is in the pension phase all income and capital gains are tax-free.
Tax on benefits
- Lump sum benefits
There is no tax on lump sum super or pension benefits paid to people age 60 and over, provided a condition of release has been satisfied. - Income streams
If you roll your benefit into a superannuation income stream product, you pay no tax on investment earnings (which includes any realised capital gains). You will also pay no tax on your income payments if you're over 60 or have satisfied a condition of release.
If you have reached your preservation age and are under 60, your pension may be taxed at your marginal tax rate. A 15 per cent tax rebate may apply.
Where can I find more information about SMSFs?
Vanguard's knowledge centre:
- DIY Super Plain Talk guide
- DIY super checklist
- DIY super basics
Other useful websites
- Centrelink
- Australian Taxation Office
- Australian Prudential Regulation Authority
- Australian Securities and Investments Commission
- FACSIA (for information on retirement income streams)
- Australian Investors Association – self managed super interest group
What SMSF investment options does Vanguard offer?
DIY super investors can invest in any of Vanguard’s index funds depending on the size of your fund. Both options offer a choice of low cost, single sector and diversified investment options – all managed with Vanguard’s proven indexing approach.
- Options under $500,000
Vanguard’s Investor Index Funds offer a choice of professionally managed single and multiple sector investment options. The minimum initial investment is $5,000 per fund more - Options over $500,000
Vanguard’s Index Funds offer an extensive choice of investment options and low wholesale fees. more
Personal super
Can I choose my own super fund?
Most working Australians have the right to choose their own superannuation fund. Major exceptions include public sector employees and people employed under some State awards.
How much can I contribute to super?
This depends on the type of contribution you make.
Concessional contributions, which includes salary sacrifice contributions, are effectively an employer contribution as such, they fall within the limits that apply to those contributions. The maximum amount that is subject to pre-tax (the concessional rate) is $50,000 For those over 50, the annual limit until July 2012 is $100,000.
Self-employed contributions
If you’re self-employed you can claim a full tax deduction on super contributions you make up to $50,000 a year. If you’re over 50 this limit increases to $100,000 until July 2012.
Non-concessional contributions
These types of contributions are made from your after-tax salary so you don’t pay any contributions tax on them. You can contribute up to $150,000 in any single year, or $450,000 over a three-year period using this strategy, if you are under age 65.
What are the different types of contributions?
There are a number of ways you can contribute to super.
Super guarantee
All employers are required to provide minimum super cover for eligible employees known as the super guarantee (SG). The current SG level is nine per cent of your gross salary - for some industrial awards this level may be higher. If you’re employed full-time, part-time or on a casual basis and earn more than $450 a month your employer must make SG contributions on your behalf (some exceptions apply).
Salary sacrificing
This is a strategy where you contribute part of your pre-tax income to super. Salary sacrifice contributions usually attract a tax of just 15 per cent, about half the average marginal tax rate.
Ask your employer if you can make salary sacrifice contributions to your super fund. You may be able to contribute one-off payments like your annual bonus if you make prior arrangements.
Continuing to make salary sacrifice contributions while using a transition to retirement income stream can be a tax-effective way to top up your retirement benefit while drawing a tax-free income stream.
Self-employed contributions
Super contributions can be a great way for self-employed people to boost their retirement nest egg and reduce their company tax liability.
If you’re self-employed you can claim a full tax deduction on super contributions you make up to $50,000 a year. If you’re over 50 this limit increases to $100,000 until July 2012.
Co-contributions
This is a Government funded program to help lower income earners save for their retirement. If you earn less than $60,342 a year and make personal contributions to super, the Government will match your contributions up to a certain limit. If you earn less than $30,342 the Government will contribute $1.50 for every dollar you contribute up to $1,500 in any one year.
The Australian Tax Office will automatically deposit your co-contribution to your super account if you qualify.
Spouse contributions
Contributing to super on behalf of your spouse is a tax-efficient way for a couple to save for retirement. If you are employed and your “eligible spouse” is either not working or earns less than $13,800 a year, you can contribute to their super and gain certain tax benefits.
Personal post-tax contributions
These are made from your after-tax salary so you don’t pay any contributions tax on them. Best of all your investment earnings are taxed at the concessional super rate of 15% and you can access your super benefit tax-free when you retire. You can contribute up to $150,000 in any single year, or $450,000 over a three-year period using this strategy. (if you under age 65)
How do I qualify for the Government co-contribution?
If you earn less than $60,342 a year and make personal contributions to super, the Government will match these contributions up to a certain limit.
For example, if you earn below $30,342, the Government will match $1.50 per dollar contribution to a maximum of $1,500. This reduces progressively to no additional contribution at $60,342.
There is no need to apply for the co-contribution. The ATO will use details from your income tax return and contribution information from your super fund or retirement savings account to work out whether you are eligible. If you fall within the limits, the co-contribution will be calculated and deposited into your super account. It is not taxed when paid into your account because it is treated as a non-concessional contribution. The co-contribution will not be counted towards the non-concessional contributions limit.
How do I find my lost super?
You can track down your super using the Australian Tax Office's Superseeker online service at www.ato.gov.au/super or phone service on 13 28 65. You will need your Tax File Number to use this service. If your super is less than $200, you may be able to access it tax-free.
How do I consolidate my super?
1. Gather together all your most recent superannuation statements.
If you can’t find your statements contact your previous employer to find out the name of the super fund and its contact details. Call the super fund to confirm it has your super money and ask for your member/account number.
2. Decide which super fund to invest in
Review your current superannuation investments. Compare the investment options and insurance available, fees payable and past performance. Roll your super benefits into the fund of your choice. It may be a new fund altogether. A fund that offers a range of investment options will give you the flexibility to change your strategy as your circumstances or needs change.
3. Consolidate your super
Once you have made your decision and selected the super fund you want to invest in, you can simply apply for your super to be withdrawn and rolled over into your chosen fund. Some super funds will do this for you.
Find out about Vanguard’s free consolidation service.
When can I access my super?
You can access your super benefit tax-free at the age of 60, whether you take it as a lump sum or pension. (if you have satisfied a condition of release).
If you want to access your super as a lump sum or commutable retirement income stream you will need to be retired and of preservation age. A commutable income stream gives you the flexibility to convert your income stream into a lump sum if you need to.
Your preservation age depends on your date of birth.
| Your date of birth | Your preservation age |
|---|---|
| Before July 1960 | 55 |
| July 1960 to June 1961 | 56 |
| July 1961to June 1962 | 57 |
| July 1962 to June 1963 | 58 |
| July 1963 to June 1964 | 59 |
| After June 1964 | 60 |
If you are between 55 and 60 you can ease yourself into retirement under the Government’s transition to retirement rules. This way you can continue working full or part time while drawing an income from your super.
What happens to my super if I die?
If you die the fund trustee normally pays your death benefit to your dependants or your estate. Most super funds allow you to nominate who you would like to receive your benefit in the event of your death. Depending on your fund you may be able to make a ‘binding’ or ‘non –binding’ death nomination.
- binding nominations must be followed by the trustee. You can choose a dependant or a legal representative who distributes your benefit according to your will.
- trustees are not bound to follow your non-binding nomination however they will use them to guide their actions.
