Starting an SMSF is usually for individuals with larger super balances. The reason for this is there is a fixed cost to run an SMSF and you don’t want to start a Fund with a small balance where the cost of running the SMSF is a too large portion of your Fund balance.
One of the main reasons apart from earnings in the Fund is having some type of control over the assets in your Super and steering the direction of where you invest in. Some Trustees set up Funds for ethical reasons. An SMSF is more flexible compared to a retail or industry fund as you can invest in asset classes not allowed for in a retail or industry fund. Examples of these include investing in direct property being residential or commercial property, either in Australia or overseas and even using loans being from a bank, other lenders or a related party loan. Other assets Trustees can consider are private shares, cryptocurrency, precious metals or collectibles.
Superannuation Warehouse is a tax agent specialising in Self-Managed Super Funds, that assist Trustees with compliance of their SMSFs. This means we will set up an SMSF for you based on your instruction, issue documents needed to ensure compliance like a Trust Deed and Minutes, registering for an ABN and TFN for your SMSF and registering it for Superstream allowing for roll overs from other Funds and allowing for regular employer contributions directly into the bank account of the SMSF. We can also take on existing SMSFs from other accountants and complete the annual financial statements, arranging for an external audit and lodging the annual tax returns for the Funds we manage. Trustees can ask us questions regarding management and compliance of their Fund by either phoning us or sending us an email. We work office hours in Melbourne from 9 to 5 every work day.
Who should have an SMSF?
The most common reason that people decide to transition into an SMSF is the opportunity to make choices, have control and flexibility to manage their own retirement savings unlike retail funds, which limit your ability to make investment decisions. For many individuals an SMSF is appealing as it comes with the attractive benefits that give people the freedom to make their own choices and alter their retirement savings to align with their goals. A common scenario is for more that one person to be a Member in the Fund, say typically husband and wife and maybe the kids as well. You can add up to six Members in an SMSF. Paying a fixed fee for the SMSF accounting and tax work makes it relatively more affordable to use your SMSF as a family wealth vehicle when adding more than one Member to the Fund.
What is an SMSF
An SMSF is a type of trust, similar to a family trust or unit trust with concessional tax treatment for the purpose of providing for the retirement benefit of its Members. We assist Trustees in formulating an investment strategy to align with the type of investments the Trustees want to make. It is important to adhere to ATO rules as this makes the SMSF compliant with superannuation and tax laws resulting in a concessional tax treatment. An SMSF can have up to 6 Members and each Member must be a Trustee or Director of a Corporate Trustee. One exception is if there’s minor children where parents will act on their behalf until they become of age, meaning 18 years old.
An SMSF must be compliant with Superannuation rules referred to as the SIS Act. As a tax agent and Chartered Accounting public practice accounting firm, we assist Trustees in this regard. Trustees must ensure compliance of their SMSFs with legislations and the ATO issued great guidelines, videos and booklets to help Trustees understand their responsibilities in managing their SMSF for their long term retirement benefit. As the Tax Agent associated with the Funds we manage, we assist in Trustee responsibilities such as submitting the annual tax returns for an SMSF. At Superannuation Warehouse, we are able to support you by managing all accounting, tax, and compliance obligations on behalf of you Fund.
Who an SMSF suits
First of all, acting as Trustee of an SMSF is a responsible position and Trustees must try and do the right thing at all times which, if genuinely saving for their retirement benefit, will not result in any ATO compliance issues. Although there is an onus on Trustees to manage the Fund in a compliant manner, the ATO does not take a big stick approach in trying to disqualify Trustees and make Funds non-compliant. As long as Trustees genuinely try and do the right thing, the ATO generally have a lenient approach to Funds and Trustees.
Those suited to have an SMSF, are people who have a desired interest in their retirement benefits and want to choose their own investment options and manage it for their own benefit. An SMSF requires ongoing involvement by Trustees to ensure compliance and its worth it to note that Trustees can generally not be paid for their services as a Trustee. It is therefore important that Trustees are prepared to take on an active approach to manage their Fund. It is best that you are financially literate when running an SMSF because as a Trustee there are many responsibilities such as handling contributions and payments, establishing an investment strategy as well as managing finances and assets. These responsibilities require you to have the sufficient knowledge when acting as a Trustee. If being a Trustee interests you, and you do not have a good understanding on the roles and responsibilities it is recommended that you are willing to learn and expand your knowledge. There is an online Trustee education course that aspiring new Trustees can complete to see if they adequately understand what is required from them in their role as Trustee of an SMSF.
In the past it was recommended by ASIC that having a significant super balance, north of $200,000 is important in ensuring the cost and effort that you will be in will be worthwhile. If your balance is below this, the fixed costs, time commitment, and the responsibilities to remain compliant become may be relatively high to the financial benefits that your Fund may receive. The costs that are included when running a SMSF such as the fixed set up fees and Annual running costs, do not scale down for funds that have a lower balance, therefore Funds with a lower balance will be paying a higher percentage of there retirement savings on fees, where the recommended percentage is to be paying no more than around 2% in fees. Therefore, it is important for those with low balances to consider whether the control and flexibility of running an SMSF has sufficient justification on the increased costs and responsibilities.
However, some Trustees with lower balances can set up an SMSF if they know there is a good likelihood of them contributing substantially into super over their working career. Say for example a doctor starting a high paying career later in life after substantial study time may wish to set up an SMSF now while their balances are low as there is a reasonable expectation their super will amount to more substantial balances over time.
If you are a person looking for more flexibility on how your super is invested, an SMSF may be right for you. Managing your own Fund may enable you to be able to quickly respond to changes in the market, for example the GFC where you could exit the share market and weigh more to cash. However, with the amount of flexibility comes a level of responsibility in ensuring that all investments you chose to make are complying with superannuation laws, as well as your investments aligning with your Fund’s investment strategy.
Running an SMSF means that Trustees must be prepared to stay involved in the Fund’s key decisions. Although Trustees are personally responsible that their Fund is complying with superannuation laws and ATO guidance, Superannuation warehouse can assist you in many of these areas as we are able to guide Trustees on compliance. It is important to remember that although we are assisting you with these sections of your Fund, you must still be willing to be involved and have an understanding of the tasks involved keeping your SMSF compliant.
When an SMSF may not be right
Whilst an SMSF may sound appealing due to its benefits in the level of control over your retirement savings, there are many reasons why an SMSF may not suited for everyone. There is a lot of time and administrative burden when running an SMSF as it required a more hands-on management approach compared to retail or industry funds.
Two main problems areas we generally see is residency and compliance issues that may make Trustees ineligibly for having an SMSF.
Residency requirements means the Fund must be managed from Australia. If Trustees are overseas on a permanent basis they can’t open an SMSF and cant manage an SMSF on an ongoing basis. The rules are that the central management and control of an SMSF must be in Australia. Being overseas does not make this task impossible as you can execute a Power of Attorney which is one way around this piece of legislation. Just be mindful of there residency rules. These same rule also requires Trustees to be in Australia at the time the new SMSF is set up.
Prospective Trustees need to have a good track record with the ATO to ensure an ABN is granted when we apply for a new SMSF. Part of the set-up process is entering Trustee details as part of the SMSF application that includes your Tax File Number. The ATO does a background cross reference check and if you are an undischarged bankrupt, have taxes overdue or outstanding tax returns for either yourself or entities you act for, the ATO will use the logic that if you are non-compliant in these areas, you may be non-compliant for the SMSF and therefore nit grant the ABN for a new Fund establishment.
Costs compared with other super funds
Unlike other Super Fund structures, SMSF’s have clear Fees and fixed costs. We charge a fixed cost of $450 to set up an Individual Trustee structure and $1400 to set up a Corporate Trustee structure when establishing an SMSF. The annual fees we charge for acting as tax agent, preparing financial statements, minutes and the annual tax return is a basic package of $720 annually ($60 monthly) or an advanced package of $1,200 annually ($100 monthly). The second option allows your SMSF to invest in any assets of your choosing as long as it complies with ATO guidelines. For more information on our fees, we have a fees schedule page on our website. Other fees we charge includes pension commencement minutes, actuarial certificates and property valuation fees.
The fees we charge compares favourably to other super funds as charge fees that may be hidden from members and not always transparent. Fees within a retail or industry fund may include transaction costs (brokerage commissions, buy/sell spreads, in-fund transaction costs), Management costs (performance fees, custodial and inactivity fees), Activity based fees (Switching fees, insurance premiums, exit fees).
In comparison, although other Super Funds can be more convenient and appear cheaper at first glance, it is important to be aware that there are many hidden fees that may apply, and many clients are unclear of the fees they’re paying within a retail or industry fund. SMSF’s provide Trustees with a clear understanding of what they’re paying for.
Should I start an SMSF
Although Starting an SMSF is a big step in your financial journey, we do our best to make this process as easy as possible for Trustees. Remember if you have an SMSF and think its not suitable for you, you can close the Fund and transfer your funds back to an industry or retail fund.
Another approach Trustees can follow is setting up an SMSF and use it for part of their super invesments, meaning some of your Super remains in your existing Fund. This can give you a good idea of whats involved without commiting fully to an SMSF.
Another approach is to use your existing fusuper fund for the more conservative fortion of your super and then have an SMSF for the more out-the-ordinary investments, say a commercial property or crypto. Some of our Trustees set up the Fund with initially one spouse in the Fund and then once they feel on top of the investment management and compliance, the remaining spouse may enter the SMSF.
How to decide and next steps
For assistance in your decision and how to make the next steps, the ATO provides comprehensive publications and resources that explain all the information you will need to know when setting up and running you SMSF. These publications setting out your duties as Trustee can be found in the link below: