FAQs, Tips, Considerations, Risks and Benefits
In an era of self-sustainability and financial independence, Self-Managed Super Funds (SMSFs) have emerged as an attractive investment option for Australians. Offering flexibility, control and potentially more favourable returns, they are increasingly becoming the investment vehicle of choice for forward-thinking individuals.
However, the world of SMSFs can seem daunting for newcomers. This blog post will guide you through the process of setting up an SMSF in 2023, discussing some of the most frequently asked questions (FAQs), highlighting tips, considerations, risks and benefits to ensure you make an informed decision.
FAQ 1: What is a Self-Managed Super Fund (SMSF)?
A Self-Managed Super Fund is a private superannuation fund, regulated by the Australian Taxation Office (ATO), that you manage yourself. SMSFs can have up to four members, all of whom must be trustees (or directors if the SMSF is set up as a corporate fund). This means that you’re responsible for complying with the super and tax laws.
FAQ 2: Who can set up an SMSF?
Anyone over 18 can set up an SMSF, as long as they are not under any legal disability or disqualified by the ATO. Disqualifications can include previous contraventions of the Superannuation Industry Supervision Act 1993 or convictions for dishonest conduct.
FAQ 3: How do I set up an SMSF?
Setting up an SMSF is a multistep process that includes:
1. Choosing individual trustees or a corporate trustee.
2. Creating the trust and trust deed.
3. Appointing the trustees.
4. Registering your SMSF with the ATO.
5. Setting up a bank account for your SMSF.
6. Creating an investment strategy.
7. Appoint an SMSF Administration provider or accountant to handle your funds
a) Tax return b) Auditing
FAQ 4: Can I transfer existing super into my SMSF?
Yes, you can roll over existing super into your SMSF via MyGov, view our earlier Blog article on smsf super rollovers via MyGOV. It is recommended that you consult with a financial advisor, accountant or lawyer, before making this decision, to avoid potential tax implications or loss of insurance cover.
Tips and Considerations
1. Engage Experienced providers: Setting up an SMSF requires expert knowledge of super and tax laws, so engage professionals like a specialist SMSF provider like My SMSF, or a solicitor, accountant, or financial planner to help guide you.
2. Costs and Time: SMSFs require significant time and financial investment. Factor in ongoing expenses like professional fees, audit fees, and insurance. My SMSFs fee is $1,100 pa ( includes tax and audit and email support)
3. Insurance: If you’re transferring super to your SMSF, check your current fund’s insurance policy first. You might lose your insurance cover during the process.
4. Investment Strategy: Your investment strategy should align with the financial goals of all members and consider risk tolerance, diversification, liquidity and insurance.
Risks and Benefits
1. Control: You have full control over your super investments.
2. Flexibility: You can invest in a wider range of assets, such as direct property, and unlisted shares.
3. Tax Strategies: With an SMSF, you can implement tax strategies that are often not possible in other types of funds.
4. Estate Planning: An SMSF can provide more flexibility and control over the distribution of benefits upon death.
1. Financial Risk: Like all investments, your super’s performance is not guaranteed. The value of your SMSF can go down.
2. Regulatory Risks: If your SMSF breaches any laws, you could face penalties from the ATO.
3. Management Risk: Running an SMSF requires ongoing management and a significant time commitment.
Key Documents and Maintenance Frequency
Setting up and managing an SMSF involves keeping track of a number of essential documents. These documents need to be updated at various intervals to ensure your SMSF remains compliant. Here’s a list of key documents and their update frequencies:
1. Trust Deed: This is the foundation document of your SMSF. It should be reviewed every 2-3 years to ensure compliance with changes in superannuation laws.
2. Investment Strategy: This document outlines your fund’s investment approach. Review and update your investment strategy annually, or whenever there are significant changes in the members’ circumstances.
3. Minutes and Records: All trustee decisions should be documented in meeting minutes. Keep these updated consistently and retain them for at least 10 years.
4. Review Binding Nominations: This document instructs the SMSF provider to pay out SMSF benefits; assets held; to your beneficiaries or estate. Legal advice should be sort on these documents.
My SMSF Fees
The management of an SMSF comes with certain costs. At My SMSF, we strive to provide a cost-effective service with clear and transparent fees. Here are our charges:
1. Setup Fee: A one-time fee of $880 is charged to set up your SMSF, covering the cost of creating the trust deed, registering the fund with the ATO, and establishing a bank account.
2. Basic Annual Administration Fee: Our annual administration fee is $1,100. This covers tax and audit work, as well as email support to assist you in managing your fund.
3. ATO Levy: An annual levy of $259 is payable to the ATO. This cost is set by the ATO and is the same for all SMSFs and this fee is tax deductible.
4. ASIC Annual Trustee Company Renewal Fee: If your fund uses a corporate trustee structure, there’s an annual ASIC fee of $63 for renewing the trustee company. This fee is set by ASIC and applies to all SMSFs with a corporate trustee. This fee is tax deductible.