Small APRA Funds - the overlooked option?
As we mention elsewhere, self managed superannuation funds (SMSF) have proven extraordinarily popular in Australia - in our view, perhaps too popular on occasion. Conversely, "small APRA funds" (SAF) have proven nowhere near as popular - with the total value of assets within SAF's only $2.2B as at June 2019 - although they have much the same intrinsic flexibility - including the ability to invest in direct property.
SAF's are super funds structured in much the same fashion as SMSF's, with a maximum of four members , but with the trustee responsibilities undertaken by an APRA licensed trustee rather than the members themselves. This means an additional cost, but the trustee takes full responsibility for running the fund, including all risk management, legislative reporting responsibilities and administration. Also, because SAF's are regulated by APRA rather than the ATO, members have access to the Superannuation Complaints Tribunal, for dispute resolution, and the Superannuation Compensation Scheme - which compensates members for losses suffered through fraud or theft.
In effect, a SAF may be a useful structure for any individual or group wanting both control over their investments and flexibility, without the overhead and responsibilities associated with being a trustee. It is a model that potentially fits those who after retirement may wish to step back from some of the administrative responsibilities associated with a SMSF.
Additionally, if individuals or groups want to spend significant time outside Australia, you need to bear in mind that Australian superannuation funds must remain "resident" for tax purposes in order to continue attracting the various tax benefits applicable to superannuation funds. If trustees are non-resident this can pose significant problems for a SMSF and converting the SMSF to a SAF is one option which should be discussed with advisers. SAF's easily meet the residency requirements as all trustee companies are incorporated in Australia, but bear in mind that whether you are a member of a SMSF or SAF, non-resident members cannot contribute to the fund unless contributing (resident) members hold more than 50% of the fund's assets. Complicated stuff, and hence the need for specific advice.
Also bear in mind that certain individuals cannot be trustees of a SMSF, such as a bankrupt; also, if there are concerns that members will suffer diminished capacity over time, a professional external trustee should be considered in any event. Transitioning from a SMSF to SAF is also usually relatively simple, involving the replacement of the existing trustees with a professional trustee and without triggering a CGT event, but you need to first ensure that the range of investments authorised by the Trustees suits your needs. There are a limited number of licenced Trustees and some more exotic investments - for example, cryptocurrencies such as Bitcoin - may not currently be acceptable to individual trustee companies.
SAFs are an overlooked, attractive option in many situations, but written advice is certainly recommended prior to constructing a SAF or organising a rollover of super funds into a SAF.