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Self Managed Super Fund (SMSF) Set Up

SMSF Setup

In a Self-Managed Superannuation Fund (“SMSF”), you set up and, most importantly, manage your own Super fund in order to maximise and control your retirement benefits. An SMSF is best suited for those who are looking for maximum control and transparency over their Super assets, and for those who are prepared to accept the responsibility of being trustees, and work at managing the investment.

So how do you start your own SMSF?

At AustAsia Group we can assist you to:

  • Decide whether an SMSF is right for you;
  • Set up and administer your SMSF;
  • Understand your responsibilities and obligations; and
  • Design and implement your unique investment strategy.

Advantages and Disadvantages

The main difference between SMSFs, and other super funds (like industry and retail funds), is that SMSF members are also the trustees of the fund. The trustee structure can be either corporate trustee individual trustee.

Advantage Disadvantage
Greater management control and flexibility Greater responsibility
More investment choices, transparency on fees and investment returns Harsh penalties for breaches
Using an SMSF in your overall investment strategy Can be time consuming
One fund for the family Could be higher operating costs for low balance
More choices when receiving a pension  
Greater estate planning certainty and flexibility  
Potential Tax Savings  

AustAsia Group are SMSF Specialists

We are SMSF Specialists and manage over 180 SMSFs. We pride ourselves on our expertise and our ability to work closely with our clients. We also hold an Australian Financial Services License issued by Australian Securities and Investment Commission. So, we are qualified to assist you with the set up your own SMSF, provide investment advice and other ongoing services.

We will be there for you every step of the way. From setting up the fund, including deeds, minutes, bank accounts, ABN and TFN, corporate trustee and rollovers, to investing your super monies with regular reviews along the way.

If an SMSF is something you would like some further information on, please contact us.

Frequently Asked Questions

In a Self-Managed Superannuation Fund (“SMSF”), you set up and, most importantly, manage your own Super fund in order to maximise and control your retirement benefits. An SMSF is best suited for those people looking for maximum control and transparency over their Super assets and for those who are prepared to accept the responsibility of being trustees and work at managing the investment.

What are the Advantages?

Considerations Background and Explanation
1. Management Control and Flexibility An SMSF provides superior management control and flexibility over your superannuation entitlements. As you are the Trustee of your SMSF you have effective control over the operations, investment selection, and overall management of the SMSF, even if some of these activities are outsourced.

You are able to implement specific investment strategies that are tailored to your requirements and needs. Whilst there are set regulations and investment criteria that must be considered and adhered to, you essentially have control over the underlying investment selection of your superannuation entitlements.
Your SMSF could also make a larger investment in assets such as shares and property by using cash in your fund and borrow the rest.

2. More Investment Choice An SMSF is able to invest in most assets, similar to any other investors. Shares, commercial property, property syndicates, developments, residential property, managed funds, bonds, cash on deposit, mortgages and term deposits are some examples.
Further investment examples are artwork, antiques and other collectible assets, as long as they provide for the retirement of the members.
3. Using An SMSF in your Overall Investment Strategy An SMSF may, due to its tax advantage status, enable you to undertake different strategies outside of Super. Super may be invested in capital growth oriented assets to utilize the 10 per cent Capital Gains Tax concession while investing in income providing assets to assist your current needs. Using a personal gearing strategy (out side of your Super) can further enhance this approach. By using a gearing strategy you may receive a full tax deduction on the interest you pay and are only taxed 50 per cent of the nominal gain if the assets are held for 12 months or more.
4. One Fund for the Family You can set up a fund for yourself and up to three other people and consolidate your super balances. This could enable you to invest in assets of higher value than if you set up a fund with fewer members, achieve greater estate planning flexibility, and reduce fund costs.
5. No Contribution Fees When you make superannuation contributions to your SMSF you do not pay any contribution fees. Likewise, you do not pay any exit fees when you withdraw funds from the SMSF. Whilst a SMSF will pay investment fees for the actual investment of the superannuation entitlements, there are no contribution fees payable. This can result in a reasonably significant saving for your superannuation.
6. Tax Savings With SMSFs you can take greater control over the timing of tax events such as starting a pension without triggering capital gains tax, when your superannuation assets move into pension phase. You may also have the option of transferring assets that you own into your SMSF.

Other tax advantages include:

  • The concessional 15 per cent tax rate on earnings and contributions claimed as a tax deduction by you personally or by your business
  • The effective 10 per cent tax rate on capital gains made on investments held for more than 12 months
  • Rebates on contributions made on behalf of a spouse
  • A concessionally taxed end benefit
  • Paying Life insurance premiums through your SMSF (which are generally tax deductible to the Super fund)
7. Flexibility When Receiving A Pension The advantage of receiving a pension from your superfund is that a part of your pension is typically tax-free. The ATO recognises that as you have used your own funds to contribute to your superannuation fund, your investment is returned to you over the life of the pension.

Once the superannuation fund is paying a pension, the fund becomes exempt from tax. As such, all income and capital gains that are made by the fund are not subject to tax. You pay tax when you draw out your superannuation pension each year.

When you draw a pension from your superannuation fund, you can use an allocated pension. This means that your superannuation is allocated over your life expectancy. You are required to draw down a minimum pension and a maximum pension each year. You can also draw a lump sum, or a combination of the two. Your circumstances at the time of withdrawing your pension need to be considered before withdrawing any funds either as a pension of a lump sum.

The management control and flexibility generated through a SMSF continues to provide benefits when you commence drawing a pension. A SMSF provides flexibility and control over the investments that are utilised to provide a pension, and the manner in which the pension is drawn.

From 1 July 2007, if you are over the age of 60, any pension that you draw from superannuation is tax-free. As a result, there is more reason to keep your options flexible and enable you to take a tax-free pension upon retirement. New announcements were made in the May 2016 Federal Budget that may limit the value of assets held in your pension account to $1.6m. This is not yet law, so may not be passed.

8. Greater Estate Planning Certainty and Flexibility You can nominate who you would like to receive your super when you pass away without having to meet some of the constraints that apply to other super funds.

What are the Disadvantages?

While an SMSF can offer greater opportunities to take control of your retirement savings, there are some potential disadvantages you should also consider:

Considerations Background and Explanation
1. Higher Costs for Lower Balances Although SMSFs generally only become cost-effective if the fund has $200,000 or more invested, especially if you outsource and pay for most or all of the fund administration. However, if you want to invest into direct property, an SMSF is the only vehicle for super funds.
2. Greater Responsibility When you set up an SMSF, you and any other fund members will generally need to be trustees (or directors of the corporate trustee) and will be responsible for meeting a range of legal and other obligations
3. Harsh Penalties for Breaches The Australian Tax Office has the authority to impose various treatments to deal with SMSF trustees who have breached super laws. These include:

  • requiring trustees to complete certain educational requirements within certain timeframes
  • disqualifying an individual from acting as a trustee or director of a corporate trustee
  • imposing significant administrative penalties on individual trustees and directors of corporate trustees of up to $10,200 per breach
  • applying through the courts to impose civil and criminal penalties, and
  • giving notice to a trustee to freeze the SMSF’s assets where it appears that their conduct is likely to adversely affect the interests of beneficiaries.
    Setting up a Corporate Trustee helps minimise any penalties.
4. Time Consuming You will need to have enough time, knowledge and skills to manage your own super and meet your legal and other obligations.

What are the Restrictions?

Considerations Background and Explanation
1. Membership Restrictions The law requires an SMSF to have less than five members and that all members must be trustees or directors of a corporate trustee. No member of the fund can be an employee of another member of the fund unless the members concerned are relatives. An arms length employee of a company, which contributes to the SMSF (in respect of its controllers), cannot be a member of the same fund as the controllers of the company.
2. Investment Restrictions Existing legislation requires that all financial transactions occur as they would if they were being conducted at arms length. The appropriateness of SMSF investments is now a key area of regulation, and the investments of a SMSF must consider the needs of the Fund’s members and their Risk Profile. Legislation has been passed to prevent people from putting inappropriate investments into their SMSF to avoid paying their marginal tax on investment earnings. Inappropriate investments may include purchase of equipment for leasing back to the business, for example, a dentist leasing dental chairs and equipment from an SMSF would in our opinion not be providing for retirement benefits.
2.1 Related Parties and Relatives Your SMSF must invest for the sole purpose of providing for your retirement. Exiting investment rules meant that the fund is unable to:

  • Make loans or give financial assistance to members or relatives
  • Acquire assets from related parties
  • Borrowing by the fund and providing finance to a related employer
2.2 In-House Assets Government legislation limits Super funds from having more than five per cent of the market value of the funds invested in ‘in-house’ assets. The major exception is where a fund acquires premises used for business purposes. This may mean that an SMSF may invest in commercial, industrial or retail property. ‘In-house’ includes:

  • Investments in related parties, including geared private unit trusts; and/or
  • Investment in related parties, for example, leasing a holiday house back to members of the Super fund.

What are the Risks Associated with SMSFs?

Considerations Background and Explanation
1. Responsibilities and obligations for SMSF trustees associated with running an SMSF SMSF trustees need to comply with a number of obligations under the superannuation and taxation laws, as well as the trust deed. There may be various consequences—for example, loss of taxation concessions—if an SMSF trustee fails to comply with their obligations. Even if one trustee is less actively involved, all trustees are equally liable for the fund’s compliance with the superannuation and tax laws.

The Australian Taxation Office (ATO) requires new trustees to make a declaration that they understand their responsibilities and obligations as an SMSF trustee, including to:

  • ensure that the SMSF is managed in compliance with the relevant laws and be responsible for and control the SMSF;
  • maintain the fund for the sole purpose of providing retirement benefits to SMSF members, or to their dependents if a member dies before retirement;
  • accept contributions and pay benefits (pension or lump sums) to members and their beneficiaries in accordance with superannuation and taxation laws and the SMSF trust deed;
  • value the fund’s assets at market value for the purposes of preparing financial accounts and statements;
  • have the financial accounts and statements for the SMSF audited each year by an approved SMSF auditor; and
  • meet the reporting and administration obligations imposed by the ATO.

It is important that trustees understand that they remain responsible for managing the fund even if they outsource some or all of their responsibilities to external service providers.

2. Risks associated with an SMSF
a) Lack of insurance for SMSFs Unlike APRA-regulated funds, SMSFs do not come with insurance. The potential loss of insurance benefits as a result of switching from an APRA-regulated fund to an SMSF is an important issue. SMSF trustees should consider whether it is appropriate to take out separate life insurance for members, including income and total and permanent disability cover, as part of the fund’s investment strategy. Although taking out this insurance will be at an additional cost to the SMSF, the risk of not having appropriate insurance is that it may leave members worse off in retirement.
b) Other risks associated with an SMSF structure There may be risks, for example, associated with:

  • a lack of access to the Superannuation Complaints Tribunal to resolve SMSF complaints;
  • using individual trustees as opposed to a corporate trustee; and
  • a breakdown in the relationship of fund members, especially in circumstances where the membership structure of the SMSF is unusual.
3. The need to develop and implement an appropriate investment strategy for an SMSF Developing and implementing an appropriate investment strategy is a serious responsibility for SMSF trustees. The trustee will ultimately remain responsible for the fund’s investment strategy even if they seek investment advice from an adviser.

It is important that trustees understand:

  • the benefits associated with asset diversification and investing across a number of asset classes (e.g. shares, real property and fixed interest products) in a long-term investment strategy, such as improving the risk and return profile of an SMSF fund;
  • there are some restrictions on SMSF investments and, as part of their obligations, trustees are prohibited from entering into certain transactions, such as lending the fund’s money, or providing financial assistance to a member of the fund or their relatives; and
  • they should conduct a regular review of the SMSF’s investment strategy to ensure that the investment strategy continues to reflect the purpose and circumstances of the fund and its members.
4. The time commitment and skills needed to run an SMSF effectively Trustees can use external research or advice to develop their financial knowledge over time, but they remain ultimately responsible for ensuring that investment decisions are made and implemented according to the SMSF’s investment strategy.
5. The costs of managing an SMSF The costs associated with managing an SMSF are potentially significant and should be considered to make an informed decision about whether an SMSF structure is a suitable superannuation vehicle for them.The costs of managing an SMSF include:

  • establishment costs (e.g. preparation of a trust deed and development of an investment strategy); and
  • ongoing costs associated with operating an SMSF (e.g. annual administration and investment costs, the cost of outsourcing the trustee’s compliance obligations and statutory charges).

Please see Appendix H for more details and examples of the costs.

6. The need to consider and develop an exit strategy for an SMSF Trustees and members need to consider and develop an exit strategy for the SMSF in situations, for example, where the compliance requirements become too onerous or costly for the SMSF trustee.

It is important to be aware of the process for winding up an SMSF and the likely costs associated with that process.

7. The laws and policies that affect SMSFs are subject to change The taxation and superannuation laws and policies that apply to SMSFs may be subject to continual change, including changes to legislation, and regulatory policies and standards.

How do I set up an SMSF?

You tell us and we do the rest. Prior to this decision we will discuss and consult with you to ensure an SMSF is right for you and the objective(s) you are trying to achieve.

We will handle the process, summarised here, and provide you with all documentation:

  1. Agree on the SMSF set up cost;
  2. Agree on name for new Fund;
  3. Set up the Fund and a Company as Trustee.
    (Sample Name. XYZ Super Pty Ltd AS TRUSTEE FOR XYZ Super Fund);
  4. Apply for ABN and TFN for the Fund;
  5. Setup a new bank account for your SMSF;
  6. Appoint us as the adviser so we can access your current fund details and review your current super position, including life insurance;
  7. Organise rollover paperwork for both super and life insurance;
  8. Organise new life insurance if the existing life insurance is not transferrable;
  9. Receive the rollovers from the other funds;
  10.  We will provide you with some investment options for your money and start investing (Cash/Term Deposits, Shares; and/or Property); finally
  11.  Once your fund is setup, we will provide you with a Complying Fund Letter to give to your employer so future SG Levy contributions (currently 9.5%) are paid directly into your new SMSF.

How can AustAsia Group Help You?

We are SMSF Specialists. We have over 180 SMSF clients and pride ourselves on our expertise and our ability to work closely with our clients.

Through AustAsia Accounting Services and AustAsia Financial Planning, AustAsia can assist you to develop your investment strategy, in order to satisfy the investment requirements governing SMSFs. We are able to assist in restructuring your business affairs so that you may hold your business premises in your super fund, invest in managed funds (includes share, bond, property and cash funds and a range of diversified funds) property syndicates, direct shares and a variety of other investments. They can compliment your existing investments or form the core of your super fund.

AustAsia Financial Planning holds an Australian Financial Services License issued by the Australian Securities and Investment Commission. We are licensed, qualified, and experienced in recommending and implementing Superannuation and investment strategies.

AustAsia Accounting Services is a registered tax agent, and is experienced and qualified to help you meet the legal requirements of a SMSF including record keeping, preparation of annual reports for the fund, and attending to the legislative requirements of auditing, tax returns and the compliance return.

If you would like to investigate this super option further, please contact us

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Published Date: Jun 26, 2020 | Last Modified: July 24, 2020