SMSFs are an excellent, long term retirement investment vehicle that provides flexibility and control for their members. In saying this, they are subject to terms and conditions that make them unsuitable for every working Australian. For some, a SMSF is simply not the right fit and there are many variables that need to be considered before making an informed choice.
Before setting up a SMSF you need to fully understand the role and responsibilities of a trustee. If these roles are not suited to your personal circumstance then a SMSF may not be an appropriate choice.
Is a SMSF appropriate for my personal circumstances?
The balance of your Superannuation fund can influence whether or not you think that a SMSF is a viable choice. Most Superannuation funds charge per annum administration fees of 1%-3%. SMSF costs vary considerably depending on the nature of the fund (see SMSF comparison table) A TABLE OF COMPARISIONS WOULD BE GOOD HERE. Based on an average per annum administration cost of around $2000, SMSFs are beneficial for people with a balance of $100,000 or more as it equates to 2% or less of your overall balance. This is comparable to commercial funds and as the balance grows the relative percentage becomes smaller (a balance of $200 000 would mean the annual fee was 1% etc.) Therefore if you have a balance of $100,000 + or a balance of close to $100,000 that you expect to increase quickly through investment strategies, a SMSF could be the right choice for you. However if you have a smaller Superannuation balance the administration costs of a SMSF could outweigh the benefits and you may e more suited to a commercial fund. Remember that a SMSF can have up to four members and the balance is the combined total of all members Superannuation funds.
As a member of a SMSF you are charged with the role of trustee (or director of a company acting as corporate trustee) of the fund. As such, you must be willing to accept the responsibilities that come with the role. As a trustee you will be ultimately and legally responsible for decisions made and action taken by the fund. This includes administrative duties and end of year audits as well as full compliance with the SIS Act (1993). You will be required to create and adhere to an investment strategy for the fund; therefore the type of person suited to establishing a SMSF would usually be one who has an existing understanding of investment markets. In the past small business owners have made up a large portion of the SMSF trustees as they are competent when making business and investment decisions that comply with specific regulations.
Compliance with the Superannuation rules under the SIS Act (1993) is paramount to the success of a SMSF. Penalties for incomplete or fraudulent documentation are harsh and regularly enforced. ‘Pulling a fast one” or doing something “sneaky” will result in the enforcement of penalties of the zero tolerance laws outlined in the SIS guidelines. Only trustees willing to comply with the appropriate laws and subsequent zero tolerance policy should consider establishing a SMSF.
AS the regulator of all SMSFs the Australian Taxation Office provides two exceptional information booklets that every possible future trustee should familiarise themselves with. These booklets will clearly explain the responsibilities inherent to becoming a SMSF trustee and allow readers to make an informed choice. DO NOT begin to establish a SMSF before reading these guidelines.
Thinking About Self Managed Super
Running a Self Managed Super Fund
Assuming that you have read the relevant information and decided that a SMSF is the right retirement investment vehicle for you the next step is to establish your SMSF. For guidelines on how to do this please visit our Setting up a SMSF page.
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