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Self Managed Super Fund (SMSF) Article
SMSFs and Small APRA Funds

By Tony Negline.

This article may be out of date.

17th August 2005

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Under the super laws two types of DIY super funds are allowed – Self Managed Super Funds – often called SMSFs – and Small Australian Prudential Regulation Authority Funds which are generally referred to as Small APRA Funds or SAFs.

There is one important similarity with these fund types.  Both funds can have no more than four members.

Equally there are some important differences between SAFs and SMSFs:

Some investors who want to put their retirement asset into a small super fund may find that they are not allowed to use a SMSF and are therefore forced to use a SAF.  For example:

People who ignore these particular requirement risk up to six months jail or being fined its monetary equivalent.

Other investors, given their personal circumstances, may be permitted to be a trustee of a SMSF but might prefer to run a SAF.  For example:

If a small fund is changed from a SMSF to a SAF there is no need to wind the SMSF up and start a new fund.  Effectively the SMSF trustee resigns and is replaced by an Approved Trustee.  The ATO is told the fund is no longer a SMSF and APRA is told that it now has another fund to regulate.  Most Approved Trustees will insist that a fund's trust deed is altered to their standard small fund trust deed.

Additionally, before agreeing to take on a SMSF, an Approved Trustee will carefully examine a fund.  They will want to make sure the fund complies with all the relevant laws and has always complied.  If a fund hasn't always complied then it must be completely cleaned up before any Approved Trustee will be prepared to take it on.  Assets that are not acceptable to the Approved Trustee will have to be disposed of.  Typically this will be assets that either have negligible return or make up a disproportionately large percentage of total fund assets.

Instead of using a SAF investors who find themselves in any of the above situations might consider shutting down their SMSF and transferring their super fund monies to another type of fund such as a retail fund.  However anyone who has not retired and wants to transfer assets between super funds must factor in Capital Gains Tax.  Retired SMSF members who have to transfer their retirement assets into another superannuation vehicle might face Reasonable Benefit Limit issues which must be factored into any decision.

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