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 financial investments by an SMSF are required to be done so on a commercial basis known as “arm’s length.” This means that the terms of the investment must be the same as those that you would offer to a complete stranger. Both the purchase price and the sale price of fund assets should always be at their actual (and verified) market worth, and the rate of return that is reflected in the income generated by fund assets should always reflect a real world commercial rate of return.
With very few exceptions, a self-managed superannuation fund (SMSF) is not allowed to buy assets from a related party of the fund. The acquisition of the following is one of these limited circumstances:
• 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?
You, as a member of an SMSF, will have direct responsibility for ensuring that your fund complies with all applicable legal requirements. Should you fail to do so, your fund will be labelled a “non-complying fund,” and it will no longer be eligible for the favourable tax treatment accorded to superannuation funds.
Administering your personal self-managed superannuation fund (SMSF) will require you to make (good) investment decisions, including the design of an investment strategy that you will assess on a regular basis. You will also be responsible for making decisions regarding the allocation of your funds. A self-managed super fund (SMSF) has the potential to be an excellent vehicle for retirement and tax savings if it is managed by an experienced investor who has a favourable risk profile. On the other hand, if it is managed poorly, it has the potential to wipe out an entire family’s life savings and leave them with nothing.
Nearly all SMSFs will pay for further assistance with the following:
- the annual SMSF return preparation
- asset appraisals for the SMSF
- certificates from actuaries for SMSFs that pay income streams (pensions)
- advice of financial matter
- legal costs, such as those incurred should the trust deed need to be altered
- assistance with managing funds
- insurance for participants.
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!
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.