Is an SMSF right for you?

An expert guide to deciding whether an SMSF is right for you and the steps involved.

Is an SMSF right for you?

Self-managed superannuation funds are popular with Australians wishing to take on the responsibility and control of their retirement savings. SMSF Association policy adviser Franco Morelli explains what you need to know when considering this option.

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A self-managed super fund (SMSF) is not the right choice for everyone. It is important that you understand your obligations as SMSF trustees and the pros and cons of setting up an SMSF.

Setting up an SMSF can be complicated and not getting it right can materially affect your financial situation and retirement plans. The first question you need to be sure about is whether an SMSF is the right fit. Seeking specialised financial advice can help you determine this answer.

Some considerations include:

Low balances
You must ensure you have an appropriate superannuation balance before considering an SMSF. While a low balance can be a red flag, it is not always a barrier to entry. However, in many cases, establishing an SMSF with a starting balance of $200,000 or below may not be in your best interests. This is because SMSFs tend to be more cost efficient with larger balances.

Motivation
You must also understand your motivation for establishing an SMSF. The most common motivation SMSF trustees indicate is control. Control of an SMSF allows individuals to have a wide range of investment choice, flexibility and engagement with their superannuation.

Costs and time
SMSFs incur a wide range of costs in establishment and the day-to-day running of the fund. Ensure you are across the estimated establishment, accounting and audit costs that will be incurred by your SMSF. Speak with your advisers, so you are across all other incidental costs, which, unlike large super funds, generally occur with fixed rates rather than as a proportion of your balance. SMSFs also require dedicated attention from trustees, who will take time out of your daily life to manage.

Establishment process
Once you have decided that an SMSF is right for you, you must engage in the establishment process. A specialist SMSF adviser is the best person to help you to run through the following steps.

1. Choosing a structure. About 81 per cent of SMSFs are set up with corporate trustees. A corporate trustee structure, while adding costs to the set-up can provide advantages to an SMSF in terms of succession planning and asset protection.

2. Drafting the trust deed. The trust deed is a legal document that covers how to establish and operate the SMSF. It details all the members and trustees, as well as the rules and regulations of the fund, investment and contribution information and wind-up procedures. It includes such things as the fund’s objectives, who can be a member and whether benefits can be paid as a lump sum or income stream. The trust deed and super laws together form the fund’s governing rules.

3. Establish the trust. To establish the trust, the fund must set aside a nominal asset for the benefit of members. This is typically a token amount until members are able to roll over their existing benefits from elsewhere or make contributions themselves.

4. Sign an ATO trustee declaration. An ATO trustee declaration must also be signed by trustees and directors of a corporate trustee of an SMSF to declare they understand their obligations and responsibilities.

5. Check on Australian residency. An SMSF is generally an Australian super fund if it was established in Australia; the control of the fund is ordinarily in Australia and the fund has at least 50 per cent of its contributing members in Australia.

6. Register with the ATO. The fund needs to be registered with the ATO within 60 days of being established and the trustee will need to elect for the fund to be regulated. This is done by applying for an Australian Business Number (ABN) at the Australian Business Register. When completing the ABN application a tax file number (TFN) for the fund should also be obtained.

7. Set up a bank account for your fund. A bank account should then be opened in the SMSF’s name to accept cash contributions, receive income from investments, pay fund expenses and pay benefits to members.

8. Get an electronic service address to receive employer contributions. If the fund receives employer contributions, it will need an electronic service address (ESA) to enable it to receive data. The employer will need to know the fund’s ABN and bank account details, in addition to the fund’s ESA.

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There is still time to register for the upcoming SMSF + Investor Expo, presented by the SMSF Association from 21-22 June at the Melbourne Convention and Exhibition Centre.

If you are managing your own super, thinking of doing so or are simply a self-directed investor, the SMSF + Investor Expo is a must-attend event to explore a wide variety of SMSF, investment and lifestyle information all in one location.

As a special offer for YourLifeChoices, you are able to redeem a FREE ticket to this event. Click here to redeem your ticket or follow this link: https://www.o-tix.com/event/smsfinvestorexpo?pc=yourlifechoices/#/buyTickets

The SMSF + Investor Expo will present you with the opportunity to:

  • hear the latest SMSF and investment information presented in 25-plus sessions
  • listen to keynote speakers including Peter Switzer, one of Australia's leading business and financial commentators
  • gain expert tips from industry specialists
  • collect important resources at your own pace
  • have a chance to win* big! Scan your entry ticket to win cash, holidays and more.

* Terms and Conditions apply.
Click here to find out more.

Franco Morelli is a key member of the SMSF Association’s policy and technical team and contributes to submissions to government and regulators on new policy and legislative measures. He is a recognised SMSF specialist adviser, has law and commerce degrees and a diploma of financial planning.

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    Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.





    COMMENTS

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    Old Man
    11th Jun 2019
    11:21am
    We didn't retire to take on another time consuming exercise that may give us sleepless nights. We chose an industry super fund because they hold nearly all of the top ten positions for high returns as an average. Of course we pay fees but they give us peace of mind.

    I got roundly criticised last week for suggesting that there may be a conflict of interest in a similar article because one of the speakers is a principal of Your Life Choices so I won't make that suggestion again.
    casey
    11th Jun 2019
    11:29am
    Agree 100% Old Man
    Rae
    11th Jun 2019
    2:26pm
    Certainly the Super Industry is in for the kill.

    Unless your savings generate more than $33000 as a single or $58 000 as a couple you'd be better in a low cost fund as an individual without the costs and regulations and sovereign risk involved with superannuation.

    A good accountant could figure it out for you.

    Besides even paying tax might be cheaper. Just being tax free isn't a good enough reason to invest in my opinion.
    Old Man
    11th Jun 2019
    2:58pm
    Not too sure of your response Rae. I'm talking as a retiree not as a contributor.
    Rae
    11th Jun 2019
    4:39pm
    Yes Old Man even as a retiree. Saving tax isn't very clever if it costs you income. That's all I'm saying. I know people who pay more in fees, charges and lost returns than they would pay in tax if the invested wisely. They have fallen into the "it must be superannuation" trap.

    I'm talking not superannuation at all. Just your old vanilla old fashioned investor in property, shares , bonds, gold and cash. Investments you can understand, are not government controlled and changed every budget.
    Ardnaher
    11th Jun 2019
    4:47pm
    Neither did I retire to take on a stresss producing activity such as a SMSF.

    Know a couple who spend every waking moment (almost all) on how their SMSF is going...driving themselves mad and the stress they are under is down right ridiculous.

    Also if one of the dies and the other person is not finance savvy how on earth does that ageing person cope.??

    In my opinion it is better to be in an industry super fund and the fees I pay are very small.

    I sleep soundly at night as I do not worry about finances
    casey
    11th Jun 2019
    11:28am
    I think I will leave it with my financial advisor, he has been doing a good job the last few years. Unlike my brother inlaw who after successfully running his own business for most of his life decided to be a SMSF. Managed to lose mega bucks. I believe everybody has their place in life. You go to a doctor when you are sick,a dentist to look after your teeth so if you are like me and don't fully understand the world of finance , go to someone who does
    Paul
    11th Jun 2019
    2:28pm
    Some comments on the survey results:

    1. Some people think they have already pais for their pension because they paid tax for many years. I'm sorry, but that doesn't make sense. The government is about to clock up its 11th straight deficit, and the Commobwealth's debt is about $326 billion. That means the money you paid in taxes was spent long ago and the government has been borrowing money to fund the pension and other programs. The pension is funded by current and future taxes, not taxes paid in the past.

    2. Have all those people who are so against including the house in the asset test (I think values over $600k should be assessed) considered that maybe if fewer people who could live witout it were on the pension, those who really do need it could be paid a bit more and perhaps those on Newstart could get a much-needed increase?
    Sundays
    11th Jun 2019
    3:02pm
    How would someone with a house worth $650,000 fund their retirement? That’s what you pay for an old fibro in western Sydney. Surely you’re not suggesting that you take away the only Asset working class people have got. A more realistic house value amount which lets you downsize and have money left over to fund your retirement would make more sense
    Old Man
    11th Jun 2019
    3:08pm
    I am against including the family home in the assets test, Paul, and my reasoning is that the value of homes varies dramatically depending on the postcode. Your opinion of $600,000 might sound OK (and we are below that figure) but there are some age pensioners totally reliant on the pension who live in capital cities whose home would be well in excess of that figure. Their homes could be iron and fibro, not mansions, and are in sought after areas that were once low socio-economic areas. It seems certainly more sensible to leave the family home out of the equation because of the possible disadvantage to those who are not out to rort the system. Do we need to strip pensioners of funds to subsidise another welfare group?
    Ardnaher
    11th Jun 2019
    4:56pm
    If everyone who has paid tax got the pension the county could not afford it. I can see something happening in the future but I dont know what. Maybe if they could weed out those who have hidden assets and doing sneaky things to get the pension there would be more for those who are in genuine need.

    I do think homes that are way above $1.5 million should be looked at.
    Misty
    12th Jun 2019
    1:27am
    Totally agree Old Man.
    Paul
    11th Jun 2019
    2:28pm
    Some comments on the survey results:

    1. Some people think they have already pais for their pension because they paid tax for many years. I'm sorry, but that doesn't make sense. The government is about to clock up its 11th straight deficit, and the Commobwealth's debt is about $326 billion. That means the money you paid in taxes was spent long ago and the government has been borrowing money to fund the pension and other programs. The pension is funded by current and future taxes, not taxes paid in the past.

    2. Have all those people who are so against including the house in the asset test (I think values over $600k should be assessed) considered that maybe if fewer people who could live witout it were on the pension, those who really do need it could be paid a bit more and perhaps those on Newstart could get a much-needed increase?
    Sundays
    11th Jun 2019
    3:19pm
    Ive been very happy with the performance of our Industry fund. Don’t want the stress and compliance costs associated with an SMSF. Also, there are too many people I know who have lost funds because they didn’t invest wisely
    SFR
    11th Jun 2019
    3:53pm
    like you Old Man, I retired to enjoy life not to become basically self employed maintaining a SMSF that is time & stress consuming.
    Income stream with a good Industry super fund & if everything looks like it's going pear shaped then convert it from a balanced fund to money only or take it all out & whack it into a bank. Can do it online same day.
    Misty
    12th Jun 2019
    1:23am
    The Govt is holding a review into retiree's income, maybe too many people have jumped on the Franking Credit bandwagon now they know about it after all the hoo haa before the election.


    Tags: money, super, smsf

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