Superannuation is a vital part of wealth creation in Australia. Compulsory super contributions from our employers, along with government co-contributions and tax concessions, mean we can build up a healthy nest egg to fund our retirement. However, the performance of some retail and industry super funds can be disappointing, leading many people to look for alternatives. Self Managed Super Funds (SMSFs) have become increasingly popular as they offer greater control over investment decisions and the ability to tailor the fund to individual needs.
According to the ATO in the financial year ending 2021 over 25,000 SMSFs were created taking the total number of Aussies with an SMSF to over 1.1million.
There are a few things to bear in mind before setting up an SMSF, such as the costs involved and the time commitment required to manage the fund effectively.
A SMSF, or a private superannuation fund, is a legal structure that allows you to take full control of your retirement and future finances. The key difference between SMSFs and other types of super funds is members of a SMSF are also the trustees, meaning they’re responsible for complying with superannuation laws.
SMSF Basics
When setting up a SMSF, there are many things to consider. You have to decide whether an individual or corporate trustee structure is right for your SMSF. Your SMSF can have up to six members and all members must be trustee. If you’ve appointed a corporate trustee, all members must be directors. You need to think about the costs associated with starting and running a SMSF, which generally are fixed. ASIC has released guidance on the starting balance of an SMSF stating that SMSFs with balances below $500,000 have lower returns after expenses, tax, and will often be uncompetitive, compared to APRA-regulated funds.
SMSFs are required to pay the annual supervisory levy to the ATO and arrange for an Accountant to prepare the financial statements, tax return and conduct an independent audit. It is also critical all members of the SMSF have adequate personal insurance (Life, TPD & Income Protection).
Benefits and risk of setting up a SMSF
There are many benefits of setting up a SMSF, including having full control over your finances and future, being able to make choices that benefit your specific circumstances to maximise your earnings, and having the ability to invest in anything allowed by the investment strategy prepared by the trustees. You can also derive significant tax benefits from setting up a SMSF. However, there are also some risks involved in SMSF ownership, such as penalties for non-compliance, lack of statutory compensation and lack of access to conflict resolution if disputes arise.
Myths
Deciding if the benefits outweigh the risks is up to you – but be careful as you assess the information and don’t be put off by some of the myths surrounding SMSFs.
There are many SMSF myths out there, and one of the most common is you need to be wealthy to open and run one. This simply isn’t true – while you will need a substantial opening balance (around $200k), there is no minimum balance required to maintain your SMSF.
Another SMSF myth is they are too risky. Again, this depends on how you choose to manage your SMSF – but with the right professional help and support, you can minimise risk factors and ensure your fund remains compliant at all times.
Finally, many people believe buying property with an SMSF is simple and easy. There are a number of strict conditions that must be satisfied for a SMSF to acquire a residential or commercial property. Before making any decision about buying property in super I would suggest you check out our guide to opening up a SMSF to buy property and get professional advice.
Aqwire Financial
There are many benefits to setting up and managing your own SMSF, but it’s important to get the right advice from knowledgeable professionals to avoid making costly mistakes. Aqwire financial provides administration, compliance, accounting and taxation services for Self-Managed Superannuation Funds (SMSF), so you can be confident your fund is in good hands.