Self-Managed Super Funds (SMSF) are not for everyone. They are, however, very well suited to people who wish to have control over their investment selections, and who are passionate about growing their superannuation for retirement.
There are rules relating to SMSFs (like the sole purpose test); however, these are not difficult to comply with.
An SMSF gives you the freedom to choose your own investments, including listed securities or, if you wish, your fund may invest in a residential investment property, which is let out to an arm’s length tenant or even a commercial property where you operate your business.
This depends on your selected investment objectives and your need for a corporate trustee and/or a separate trust to hold your investment property. The costs of running an SMSF generally start at $3,000 per annum or more depending on the level of the activities undertaken within the fund.
Where you operate several investment strategies, including an SMSF which undertakes the purchase of an investment property using a limited recourse borrowing facility to secure the investment.
Most industry/retail super funds charge fees for operating your fund, plus fees for your investment choices and, if applicable, additional adviser fees as agreed with your financial adviser.
These fees range from 1% to 2% depending on your fund.
If we take a midpoint of 1.5% and you have $200,000 in your member’s account, then your existing fee is about $3,000 per annum. You should determine this amount from your existing fund if costs are an important consideration for you.
The fees on your existing super will increase as your fund balance increases, whereas the fees on your SMSF only increase based on your activity within your fund.
For example: your fees for your SMSF with a fund balance of $200,000 will be similar to your fees for a fund balance of $500,000, as these fees are based on the time taken to prepare the SMSF accounts and are not based on the assets in the SMSF.
We provide expert SMSF accounting services to clients all over Australia and Australians living internationally, including in Cairo, Hong Kong, Shanghai, San Diego, and The Hague. Should you require any further information or have questions you would like answered, please feel free to call our SMSF adviser William directly on (02) 9875 2444.
While there is no minimum balance required by the ATO to set up an SMSF in Australia, regulators and industry experts strongly recommend a minimum threshold of $200,000 in combined super savings (for up to four members) to make it financially viable and worthwhile compared with a traditional industry fund. This is because SMSF running costs are fixed; having a smaller balance means that a larger percentage of returns on the investment will be spent on these operating costs – and annual fees may significantly erode returns.
The control offered by having an SMSF comes with the responsibility of ongoing accounting, auditing, and maintaining the myriad compliance obligations set down by the ATO. Running an SMSF can be extremely complicated; it is time-consuming and very heavily regulated. Legal responsibility in particular remains with the trustee. This is why it is highly advisable to work with a professional SMSF adviser who provides expert SMSF accounting services.
There is no legal requirement to hire a professional SMSF adviser; however, doing so is highly recommended for the establishment and management of your fund, as well as when transitioning into retirement. Managing an SMSF is complicated and carries heavy regulatory burdens. Failure to maintain compliance (even in genuine error) carries harsh penalties. It is legally mandated that you, at the very least, hire a registered tax agent to prepare and lodge your annual tax return for your SMSF and also appoint an approved SMSF auditor for annual auditing processes.
An SMSF pension may be commenced once you reach your preservation age (currently age 60 in Australia for anyone born on or after July 1, 1964) and also either permanently retire, begin to “transition to retirement”, or turn age 65. (There are other emergency, compassionate, or hardship scenarios where access or partial access to super funds may be permitted sooner.) Consulting with a qualified professional adviser will help you best understand your position.
You must ensure all of your SMSF investments meet the sole purpose test and never use fund assets for personal use. Meticulous records must be maintained, personal and fund finances must be kept entirely separate, and you must strictly adhere to investment restrictions such as arm’s length transactions and meet your annual audit obligations. Your investment strategy should also be reviewed annually. Avail yourself of professional SMSF accounting services for your own peace of mind.
Having an SMSF can deliver significant tax benefits. These are primarily gained via the flat concessional 15% tax rate on investment earnings; you may also benefit from franking credits, tax-deductible expenses, savvy contribution strategies, and, once you reach retirement phase, capital gains and investment earnings can be tax-free. Non-compliant funds and unapproved income generation activities, however, can result in heavy taxation at 45%. The right SMSF accountant can help you make the right choices.
An experienced and licensed adviser can be indispensable when it comes to managing your SMSF and its investment strategy. They can help you with structuring and reviewing your fund, tailoring advice, asset selection and diversification, maintaining legal compliance, optimising tax-effective income streams, estate planning, risk management, and liquidation advice to ensure you meet your financial goals in retirement.
An SMSF can legally purchase property, but it must strictly be used as an investment only. Trustees, their family, and other related parties may not live in or rent the property; the fund cannot purchase a residential property from family members; and it must solely exist to deliver retirement benefits to fund members. Your fund can buy a commercial property (which it may then lease, including back to your business, at market rates).
