The top five things you need to know and have when it comes to having a Self-Managed Super Fund

Sole Purpose Test

The Sole Purpose Test is a rule that ensures your SMSF is used only to provide retirement benefits to the members or their dependants. This means the fund must not give any personal use or benefit now. For example, renting a property owned by the fund to a relative or using artwork at home would breach this rule. If the fund breaks this rule, the Australian Taxation Office (ATO) can apply heavy penalties, including high tax rates or disqualifying the trustee.

Binding Death Benefit Nominations (BDBNs)

Did you know that your superannuation benefits don't automatically form part of your estate when you pass away?

A BDBN is a legal document that lets you decide who will receive your superannuation when you die. It binds the trustee of your super fund to follow your instructions, if the nomination is valid. You can nominate dependants (like your spouse, children, or someone financially dependent on you) or your estate. A BDBN gives you more control and helps avoid disputes after death. It must be kept up to date, signed, witnessed correctly, and renewed every three years (unless your fund allows non-lapsing nominations). Without it, the trustee decides who gets your super.

Investment Strategy

An investment strategy is a plan that guides how your SMSF invests money to grow your retirement savings. It outlines things like risk levels, investment types (e.g. shares, property, cash), diversification, and liquidity (how easily assets can be turned into cash). It must also consider the insurance needs of members. The strategy should suit the personal and financial goals of the fund’s members and must be reviewed regularly. Trustees are legally required to follow and update the strategy to make sure the fund stays on track and compliant with super laws.

Cash Flow

Cash flow is vital in an SMSF to ensure the fund can meet its ongoing expenses, like pension payments, taxes, insurance premiums, and audit or accounting fees. Without enough liquid assets or available cash, the fund may struggle to pay these costs on time, leading to compliance breaches. Good cash flow management helps the fund stay solvent, meet minimum pension requirements, and avoid forced asset sales. Trustees must plan investments to balance growth and liquidity, ensuring there’s enough cash to cover short-term needs while still aiming to grow the fund for retirement.

Pension Phase

When a member of an SMSF enters the pension phase, the tax treatment of the fund can change significantly. Investment earnings and capital gains on assets supporting a retirement phase pension can be tax-free within the fund. However, if part of the fund remains in the accumulation phase, those earnings may still be subject to tax. Trustees must monitor how assets are allocated between accumulation and pension accounts and ensure that pensions are correctly established and documented to benefit from available tax concessions.