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Retirement Planning Self Managed Super Funds Superannuation

Self Managed Super Funds: The Complete Guide

The Ultimate Guide To SMSF – All You Need To Know From Setup to Pension

Superannuation has become a hot-topic term throughout Australia. It’s a long-term savings vehicle, brimming with tax advantages that specifically provides for retirement.

Today, experts predict that superannuation will be the largest investment that many Australians make.

While having an experienced manager deal with their investments works for some people, others prefer to take control of their own investments with the self-managed superannuation fund.

What is a SMSF?

In simple terms, a self-managed super fund, otherwise known to some as an SMSF, is a superannuation trust structure that offers financial remuneration to members in retirement.

The primary difference between SMSFs and other super fund solutions is that the SMSF members will also be the trustees of the fund.

SMSFs can have between one and four members, and each member has a significant level of control in tailoring their fund to meet their needs.

This means that SMSFs are vastly different from industry and retail super funds that are designed based on collective interests.

SMSFs provide financial benefits to members in retirement, and any beneficiaries outlined.

They each have their own Australian Business Number (ABN), Tax File Number (TFN), and transactional bank account which allows for rollovers, contributions, investments, and pensions and withdrawals. The two trustee structure options are:

  1. Corporate trustee: Where a company acts as the trustee and each member becomes a director.
  2. Individual trustee: Where each member is appointed as a trustee with a two-person minimum.

For more information read: What is a Self Managed Superannuation Fund?

Benefits: Why Establish a SMSF?

Perhaps the most obvious benefit of an SMSF, is that it offers greater financial control over your future. As a trustee, you can decide exactly how your fund will be managed, and where your money will be invested.

With a highly-qualified advisor, you can also ensure that you make the right decisions for your money. Remember though, different advisors have different levels of experience and expertise, so make sure you choose the right one.

Besides complete control, SMSFs can offer:

Read also: Why Establish a SMSF

Is an SMSF Right for Me?

A qualified advisor might be able to help you decide whether an SMSF is right for you.

For most people, a self-managed super fund can be a great way to manage retirement savings, but it’s important to ensure you have the skills and times required to manage your fund.

As an SMSF trustee you will be responsible for adhering to the rules and regulations of your fund. If you don’t follow the rules, you could face serious penalties, and tax consequences.

You will also need to make investment decisions for your SMSF, and formulate an investment strategy that you can regularly review and adapt.

Running and setting up an SMSF also costs money, and you may need to pay for additional help in the form of SMSF annual return solutions, valuations, legal fees, financial advice, and insurance for members.

Ultimately, deciding whether an SMSF is right for you will mean thinking carefully about the positives and negatives of this investment vehicle, and whether you feel confident being in charge of your own retirement funds.

SMSF Costs

When determining whether an SMSF is the right choice for your needs, you may need to consider costs. Importantly, costs can vary from one strategy to the next, and there are numerous additional extras to think about besides the establishment costs you might face.

Some of the costs that you can expect to pay include:

Altogether, a sample fee might look something like this:

SMSF advisory minimum retainer for advice: $3,000- $4,000
Online admin accounting and audit: $1,000- $2,000
Annual ASIC Corporate Fee: $500
ATO Supervisory: $518 (From 2016/2017 two years of payment are required up-front)

 

Setting up a New Self-Managed Super Fund

Setting up a new self-managed super fund is easier than it might seem, particularly with the help of the right advisor. Once you make the decision to set up your SMSF, your financial expert will start the process on your behalf, by communicating with the tax office.

They will then apply for a Tax File Number (TFN), and an Australian Business Number (ABN). These numbers will make sure that you have been properly established with the tax office.

Your expert can then act on your behalf as a tax agent and lodge your annual SMSF tax return with the tax office, although you will be expected to continue controlling and managing your SMSF.

Remember, an SMSF can either have a group of individual trustees, or a corporate trustee. Under the laws of superannuation, with some exceptions, all of the members of the SMSF much either be directors of a corporate trustee, or individual trustees of the fund.

Read also: Establishing a New SMSF

Trustee Declaration

In the process of setting up your SMSF, you will need to sign your SMSF trustee declaration which will show that you fully understand the responsibilities you have taken on in running an SMSF.

All new trustees to the SMSF will be required to sign this declaration within a period of 21 days after they become a trustee.

The rule regarding trustee declaration applies to any new SMSF trustee, regardless of whether you are a corporate trustee director, or an individual trustee.

Corporate Trustee Benefits

Corporate trustee membership ensures that you have a company, rather than an individual as the trustee for your SMSF. This is a company that’s known as a “special purpose company”, because its sole purpose is to be a trustee for an SMSF.

According to statistics released by ATO, the trustees of approximately 80% of all SMSFs are currently individuals. However, that doesn’t mean that corporate trustees don’t have a range of specific benefits to offer. Although the major disadvantage of setting up a corporate trustee fund is the upfront costs associated with establishing the company, there are advantages too, such as:

 

SMSF Administration and Compliance

One of the most important reasons for seeking specialist help from an experienced advisor, is that SMSFs must ensure that they compliant when managing their funds.

You must follow a range of special rules when you are running and establishing your SMSF, which include recording and reporting obligations, administrative requirements, and tax reporting and payment obligations.

The author of “DIY Super for Dummies”, Trish Power uses the C-A-R-T solution for SMSF trustees, which outline steps for Compliance, Administration, Reporting, and Tax responsibilities.

Ensuring that you’re prepared to drive your SMSF cart properly means:

Investment Strategies for SMSF

Before you begin making investments, it’s crucial to ensure that you have an investment strategy in place. Your strategy will set out the investment objectives for your fund, and ensure that you know which kinds of investments you’re able to make.

Remember that your investment strategy should be in writing, and it must take into account each aspect of your SMSF, including:

Read also: SMSF Investment Strategies & Advice

SMSF Retirement Planning Strategies

An SMSF can be a wonderful way for some people to save for retirement. Remember, the value of your savings in your account will determine the quality of your retirement, so controlling those investments and aligning them to your retirement goals is a great approach.

A self-managed super fund can be an attractive retirement planning option, and there are various strategies that can help to maximise your savings, including:

The super strategies and tax solutions that are available for you to implement will vary according to your assets, age, income, and your personal goals for retirement.

For instance, if you buy an asset and sell it during the accumulation phase, then you’ll need to pay capital gains tax.

However, if you sell the same asset in the pension phase, you will be exempt from tax.

SMSF Borrowing

As a rule, you cannot use your self-managed super fund to borrow money. However, like with most rules, this “no borrowing” clause has a few exceptions.

It’s important for SMSF trustees to know the difference between indirect borrowing and direct borrowing, and the special rules that can apply to each exception.

Your fund cannot borrow money directly except for in two instances: when you need cash to urgently settle a share transaction, or when you need cash to pay a member’s benefit.

It’s also possible to indirectly borrow money, for instance, an SMSF might invest in managed fund that borrow cash from geared managed funds, or invest in instalment options, warrants, and contracts for differences.

SMSF and Property Investments

Some people may choose to set up their SMSF primarily for the purpose of investing in residential property. However, you can only buy property through your SMSF if you’re willing to comply with the rules.

The property that you obtain must meet with the “sole purpose” standards for providing retirement benefits to fund members, and it must not:

However, it is possible for your SMSF to potentially be used to acquire your business premises, which will allow you to pay rent directly into your SMSF at an advantageous rate.

Audit of SMSF by an Approved Auditor

One important element to remember when running an SMSF, is that you will need to ensure that your super fund is annually audited by an approved auditor.

An SMSF audit will involve an approved expert conducting a compliance and financial audit of your super fund.

This will allow your auditor to examine the financial statements surround your fund, and it will require an expert to determine that you are following compliance with the SMSF rules.

Trustees of an SMSF must appoint an approved auditor no later than 45 days prior to when your annual return is due to be sent.

Additionally, you will be required to provide your auditor with any and all relevant documentation so that they can finalise the audit accurately.

If additional information is required from you by your auditor, you must supply it within fourteen days of a written request.  

SMSF Pension

It is possible for a member of an SMSF to choose between two different types of pension.

The first is a retirement phase pension or “transition-to-retirement” pension, which is also known as a “TRIP”.

If you retired before 2007, however, there is a chance that you received a different kind of pension from your SMSF.

An account-based pension is a financial vehicle that offers unlimited access to your existing account balance. However, the length of time for which your money will last will depend on the investment returns that your pension assets can deliver, and the amount that you withdraw on a yearly basis.

It’s worth noting that you will be required to withdraw a minimum amount every year according to your specific age.

Alternatively, a TRIP pension, or transition-to-retirement pension is available to people who have reached preservation age, which is usually at least 55, or 56, but they have not retired from their workforce.

You can arrange for your account-based pension to be paid as a form of reversionary pension to your beneficiaries after you die.

As with most things in an SMSF, you will be required to follow special rules when you’re running an SMSF pension, and this will include attention to detail regarding the reporting of current pension income, and making minimum pension payments.

If you are planning to run an account for accumulation and a pension account in your SMSF, then you will need to segregate the assets that support your SMSF or get an actuarial certificate.

Winding up an Existing SMSF

Before you get started with an SMSF, it can be important to ensure that you have an exit strategy in place that might help you to avoid expensive problems in the future.

There are a number of reasons why people might choose to exit or “wind up” their current SMSF, including:

Crucially, each member within an SMSF is crucial for all of the decisions made, and your obligations can’t simply be outsourced to another professional or member.

This means that if you can’t run your SMSF anymore, then the SMSF may need to be wound up.

In order to wind up your existing SMSF, you will need to:

Importantly, once a fund has been wound up, it is not possible to reactivate it.

If you would like to discuss your individual situation and find out whether or not an SMSF would be the ideal solution for your goals please do not hesitate to get in touch.

You can simply fill out our contact form or give us a call on (08) 9317 7300.

 

Disclosure:  The intention of this article is to provide you with general information only.  Please seek professional advice in relation to your specific circumstances.

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The information provided on this website, including the material and contents provided in the website publications, are informative in nature only and you should not act specifically on the basis of this information alone. It should not be used as a substitute for legal, business, accounting, tax, financial planning or other professional advice. If expert assistance is required, professional advice should be obtained.

Paul Baggetta is the Founder & Principal of Baggetta & Co. Paul Baggetta has been a Taxation Accountant since 1981, a Financial Planner since 1998, and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading) and operated his own Real Estate business for property investment clients for over 5 years as a second business.

Financial planning services are provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.

 

Taxation & Accounting services are provided by Paul Baggetta as a Registered Tax Agent (No.61487008) and is a Member of SMSF Association, FIPA & NTAA.