Self Managed Super Funds – Are They Right For Me?

The chief reasons for the popularity of SMSF’s include control over assets,
tax benefits associated with superannuation, flexibility in funding retirement, potential cost savings by eliminating trustee and portfolio fees & estate planning opportunities.

Despite these advantages, SMSF’s also carry with them certain responsibilities for trustees which are not to be taken lightly. These include:

  • the need to keep current with superannuation legislation to ensure the fund does not breach any requirements of the legislation;
  • the day-to-day administration of the fund;
  • the responsibility for a fund’s performance and its investment strategy;
  • the need to ensure all reporting and taxation requirements are met.

It is this last responsibility, namely the need to ensure that reporting requirements are met, which has seen many SMSF trustees involve accountants who use real time cloud software over recent years.

What Are The Costs Involved in an SMSF?

The 2017 SMSF statistical overview report found that SMSF members are on average older, earn more and have larger superannuation balances than the average employee. They found an average SMSF member balance to be more than $650,000.

There is good reason for this because as on average, SMSFs with $200,000 or less had higher expenses for ATO compliance than they would be charged in a public industry/retail fund. Secondly smaller SMSFs often do not perform as well as larger-sized SMSFs.

According to Canstar, the costs involved in setting up an SMSF from scratch are $1,000 – $2,000 with annual fees being that again. Anyone thinking of starting an SMSF should calculate their current retail/industry fund fees, and compare that against these figures.

Can I Invest In Anything I Choose?

All investments by an SMSF must be made on a commercial ‘arm’s length’ basis – this means your investments must be made at the same terms that you would give a stranger. The purchase and sale price of fund assets should always be at their true (and verified) market value, and the income from fund assets should always reflect a real world commercial rate of return.

An SMSF cannot purchase assets from a related party of the fund, except in limited circumstances. These limited circumstances include the acquisition of:
• listed securities
• commercial real property
• units in widely-held unit trusts.

An SMSF also cannot lend money or provide financial assistance to a member or their relative. This includes non-arm’s length dealings with a related party, loans, provision of a guarantee and forgiveness of a debt. Often scams target SMSF’s with the lure of purchasing a property and then renting it back to a family member at a cheaper cost – our advice is to avoid these as quickly as possible!

What Time & Skill Is Required To Run An SMSF?

As a trustee of an SMSF you’ll be directly responsible for your fund staying within the law. If you don’t, your fund will be designated a “non-complying fund” and lose the special tax concessions that superannuation funds have.

You’ll need to make (good) investment decisions for the SMSF, including formulating an investment strategy that you review regularly. Investment decisions from a seasoned invested with a good risk profile can make an SMSF an extremely good retirement/tax saving vehicle, but the opposite can ruin the life savings of an entire family.

Almost all SMSFs pay for additional help with:

  • preparing the SMSF annual return
  • valuations of the SMSF’s assets
  • actuarial certificates for SMSFs paying income streams (pensions)
  • financial advice
  • legal fees, for example if the trust deed needs to be amended
  • assistance with fund administration
  • insurance for members.

While all of these can be great recurring revenue for an accountant or financial planner, Bookkept wants you to be aware of the risks involved – we wouldn’t be doing our job if we didn’t!

Final Thoughts

If you are looking to set up an SMSF or thinking it’s time you made a change to a better accountant who looks after yours, please give us a call on (03) 8568 3606. With over ten years of combined experience working with a diverse range of clients, Bookkept is well equipped to assist both your personal taxes & business tax & accounting.

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