Would A Self-Managed Super Fund (SMSF) Be Good For You?
Most working Australians have their superannuation accounts, but not all super are made equally. Most Australians have split into an industry, retail funds, and regular super accounts, there is also the system for government employees and the self-managed super fund or SMSF.
SMSFs permits Australians to have more control or power over how they invest their retirement savings. This flexibility may sound attractive, but they are not for everybody because they come with their own legal framework.
According to analysts, if you want a simpler life, this might not be for you because the process would be like starting a company.
But how would you know if an SMSF is good for you?
How much money do you need to set up a Self-Managed Super Fund?
The costs involved in operating an SMSF requires a considerable amount of money to make it worth your while. Analysts say that having a large super balance, like towards a million dollars or more can be cost-effective in terms of investment fees because you are getting economies of scale and are becoming a platform for the money.
Estimates, however, differ about the absolute minimum balance required. But a consensus according to an SMSF Association specialist said that you need around $500,000 to $700,000 mark considering the fees and charges involved as well as time and effort.
Once you satisfy the capital requirement, you still need to understand exactly what you are getting yourself into. When you open a self-managed super fund, you become a trustee and are responsible for everything that happens to it. You are responsible for the fund either it is a big SMSF or a small one. Either way, you are legally liable for anything that happens to it, including compliance to Australian laws. You cannot just sit back and wait for the fund to run itself.
Paperwork that should be taken care of. Along with the big responsibility of running an SMSF, a great deal of paperwork is also necessary. Every time members put money into a super fund, the fund takes 15 percent tax for the government. If your super is a self-managed super fund you have to do these on your own. You can opt to get help from an accountant or auditor to make sure that you are compliant with all trustee obligations.
SMSF, require more work than any average super fund available.
Greater control of estates. If a trustee can get by with the responsibilities easily, there are real benefits to having your own a self-managed super fund as well. One benefit is the power it gives you over your financial affairs especially about estate planning. It also gives you the authority to pool your family’s superannuation. You can have four members, and soon you may have six. For a family that invests as a family, this may be a good way to do it.
Buying property. SMSFs allows members to access a large pool of money to buy assets that you may not be able to do otherwise. Property is a good example. SMSFs enables members or trustees to select and buy a house or apartment with the fund’s money. However, you cannot buy a place to live in. Any property owned by a self-managed super fund can be sold or rented as normal, but trustees are not allowed to reside there or use these for personal domestic purposes.
Even if SMFSs give Australians more choices on how to use their money or invest it, there are strict rules to be followed. Whatever you buy for the self-managed super fund is going to be legally owned by the fund and as a trustee, you cannot treat these assets as your own personal property.
Any asset owned by the SMSF should satisfy the sole purpose test. This sole purpose test helps protect and grow your retirement savings. Anything you buy with the SMSF must be strictly treated as investments. ATO may come in to ask why you are investing and if the investment meets the sole purpose test and if you are following the rules regarding the acquisition holding, disposal, and insurance. They, however, do not tell you what you cannot invest in.
If you will collect alcohol, for example, you cannot drink away your retirement future. During the accumulation phase (investment accumulation) you cannot consume whatever you have accumulated. For things like books, coins, wine, whiskey, and paintings, you cannot store them on your own property. They have to be stored and insured professionally under the fund’s name.
Once you move into the pension phase, you have the opportunity to enjoy and savour the fruits of your labour but with some strings attached. If you take a case of wine out of your self-managed super fund as a lump sum computation, you have to pay the market value for the whiskey or wine if you are in the pension phase. No capital gains tax will be charged on the transaction. It translates as a sale and you have to sell it at market value.
Is an SMSF worth it? The answer is, it depends. There are several advantages to owning your own self-managed super fund, but there are also responsibilities and costs that come along with it. If you are thinking of opening one it is important to understand your responsibilities as a trustee or member. Consider your personal situation or circumstances and seek professional advice from expert financial advisers and hire an SMSF auditor to keep your investments in check.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.