WANT TO START YOUR OWN SMSF? EMBRACE THE CHALLENGE AND SEEK ASSISTANCE

Many Australians are hearing about the success of others who started their own SMSFs (self-managed superannuation funds) some time ago and are thinking about doing the same. They dwell on the benefits of taking control of their own retirement nest egg, but some of them gloss over the challenges involved, not only in getting the fund started but also the expertise required to grow the investments.

If you are one of those who are thinking that you could get a better return on your superannuation if you do it yourself, it would be wise to first consider seriously the considerable challenges ahead of you. You must first understand that the management of an SMSF is highly regulated by the ATO (Australian Taxation Office) and as the trustee, it is your responsibility to comply with complex superannuation and taxation laws.

Your first challenge is to set the fund up correctly so that it can receive contributions, be eligible for tax concessions and be correctly structured. Getting it wrong at this point will cost a lot of time and money to rectify, and in the interim, investment opportunities will be missed. Just as one example, there are many administrative tasks required, first in the set-up phase, then in day-to-day operations, as well as strict reporting requirements and deadlines to meet.

You will need to choose and appoint trustees, create the trust deed, register the fund correctly as an Australian super fund, set up a bank account, get an electronic service address and prepare an exit strategy; and this all before you have even thought about where you will be investing the funds.

To do this, you will need a documented investment strategy. There are still issues of how to pay benefits to members, choosing SMSF auditors who must meet specific requirements and be registered with ASIC (Australian Securities and Investments Commission), and the already mentioned administration and reporting.

While none of these challenges are insurmountable, if you still believe that having your own SMSF is the best option for your retirement planning, the good news is that you can have your cake and eat it too. At every step of the way, there are professionals in the relevant fields who can assist you to achieve your SMSF goals.

Accountants can help with establishing financial systems, a legal professional can prepare your trust deed and a financial advisor can help you with your investment strategy. Regarding the administration and reporting, companies such as SMSF Assure are assisting many SMSF trustees with the initial set up and the ongoing running of their funds.

Be prudent, be aware that there will be challenges, but if you take advantage of the professional help that is available, you can run your own SMSF successfully and take charge of your retirement planning.

NEED TO UNDERSTAND BUSINESS FINANCIALS WITHOUT COMMITTING TO STUDY?

Unless you are buying an existing business, chances are you are one of the many Australians who, every year, decide to start up a new business from scratch. Often in these situations, the dream has been bubbling along in someone’s mind while they are engaged in paid work for someone else. They may have seen an opportunity in the market to try something new or believe they can provide a better service to the marketplace than their existing employer.

Whatever the reason, they are usually long on knowledge and skills in their subject area, but short on financial knowledge. In the early stages their accountant, if they have one, may set up a simple system for them to do basic bookkeeping transactions themselves, and review the results monthly or quarterly. If they feel the cost of an accountant is too expensive at this stage, they may try raising invoices and paying bills themselves or use an online bookkeeping service to handle day-to-day transactions.

The danger with this approach is that they are spending their days servicing their clients and their nights wading through paperwork that they may not fully understand. Eventually, savvy business owners realise they need to improve their financial knowledge, so that when they have meetings with their bookkeeper or accountant, they get the best value out of the experience. With deeper understanding, they ask pertinent questions and feel confident in expressing opinions.

So how can an extremely busy business owner find the time to acquire some basic financial knowledge while keeping the business afloat? The traditional approach would be to enrol in an appropriate course, but the internet now provides a myriad of ways to acquire knowledge. The trick is to be sure that the information provided is up-to-date and factual, something for which the internet is not noted.

However, there is another way. Many accounting and financial services companies now use the internet to keep their clients informed of movements in the financial markets, changes to tax laws and other developments. A company like Charter Partners for example, uses their website to publish newsletters, blog posts and internet links to reliable sources of financial information that can be accessed by anyone.

Reputable accountants also make themselves accessible to their clients, building client knowledge through engagement. Some companies also offer specific business mentoring programs where clients meet regularly with qualified people who coach and guide them towards making better decisions. This process enables them to acquire practical financial skills without the commitment of undertaking formal study.

How to Check If All Your SMSF Admin Is Ready For The EOFY

If you are the trustee of a self-managed superannuation fund (SMSF), especially a newly established one, you may be approaching the new tax year with some trepidation. It starts, of course, on 1 July and it means that you should be preparing to lodge your annual return for the previous tax year.

Since one of the major benefits of operating an SMSF is the tax concessions available, it makes sense that trustees would ensure all administrative tasks, including the SMSF annual return, are completed on time. Trustees are liable to pay tax on the taxable income of the fund from the fund assets. This tax liability is advised to the Australian Taxation Office (ATO) through the annual return already mentioned. There is no separate SMSF tax return similar to others such as the tax return for individuals or the company tax return.

There are quite a few steps in the process of gathering the information needed to complete this annual return. It would be useful for the inexperienced fund trustee to make a checklist of the tasks required, starting with appointing an approved SMSF auditor not more than 45 days before the SMSF annual return due date. Add to the checklist the reminder that they may also require an actuarial certificate.

A well-managed fund should have its financial records up to date, which will make preparing the end of financial year accounts and statements a simple matter. The trustee should also have paid any minimum annual income stream payments required under superannuation laws. These tasks should be included on your checklist.

The trustee will also need to provide a market valuation of the assets of the fund as at 30 June, and also review the fund’s investment strategy and document the review. Again, these two items need to go onto the checklist.

Some fund trustees will be required to lodge transfer balance reports, so SMSF trustees need to check whether or not this applies to their fund situation and add this to the checklist if necessary.

The final two items may seem obvious, but it doesn’t hurt to be reminded by placing them on the checklist. Make sure the SMSF annual return is lodged by the due date and check that all fund records have been maintained as required under superannuation laws.

Successfully managing the entire end of financial year tasks is a big responsibility for fund trustees who have other financial responsibilities outside of their SMSF. Most trustees have now found that the end of the financial year is not to be feared when they partner with companies such as SMSF Assure to help them manage their administration responsibilities.

ARE YOU STRUGGLING WITH YOUR SMSF REPORTING REQUIREMENTS?

One of the main reasons for the popularity of SMSFs (self-managed superannuation funds) is that the fund members can make their own investment decisions as opposed to putting their money into retail funds and having no such control. Of course, this requires the trustees, who are also the members, to have a reasonable understanding of investment options and strategies.

The purpose of the fund is to accumulate savings for retirement, so it is a big responsibility and a major financial decision requiring specific skills and the time to manage the fund properly. It also involves a high level of reporting to the ATO (Australian Taxation Office) and this reporting must be done in an approved manner and within set timelines.

Along with the responsibility of making investment decisions comes the requirement to prepare regular reports, which is also time consuming. These reports must be accurate and lodged on time or attract a penalty from the ATO for non-compliance.

SMSFs must be audited every year and once the audit is finalised, the trustee must lodge an annual return with the ATO. This return is more than just a tax return. It is also used to report on a range of other matters such as superannuation regulatory information and member contributions.

While the tax return part of this reporting is a regular occurrence, the other matters are just some of the special reports that a trustee will be expected to complete at some point in the life of their SMSF. A recent addition that commenced on 1 July 2018 is the event-based reporting framework (EBR) for SMSFs.

This framework is used by the ATO to administer the transfer balance cap and is required to be completed by a trustee when their first member starts a retirement phase income stream. The actual report is called a Transfer Balance Account Report and it is separate from the annual return. The ATO uses this report to track an individual’s balance for both their transfer balance cap and total superannuation balance.

There are a number of events that affect a member’s transfer balance and all or any of these events must be reported to the ATO. There are specific instructions to follow regarding when and how this reporting must be done and timeframes for reporting are determined by the total superannuation balances of the SMSF members.

As the level of reporting required by the ATO becomes more complex, many SMSF trustees are looking for ways to improve their business reports to ensure they are accurate and lodged when they are required and in the required format. Trustees are also realising that as the reporting requirements increase, they have less time for managing their investment portfolios.

This has led to an increase in demand for the assistance of companies such as SMSF Assure. These companies are specialists in SMSF administration and are often operated by qualified accountants and other staff with the experience and skills to help trustees manage their administration and reporting responsibilities.

If you are a trustee struggling with your reporting, seeking the expertise of one of these companies is the best and quickest way to improve your business reports and keep your fund compliant with ATO requirements and regulations.

SUPERANNUATION TAX CONCESSIONS ENCOURAGE GROWTH IN RETIREMENT SAVINGS

Since the first self managed superannuation funds (SMSFs) were established, this sector of the financial services industry has seen steady growth year after year. The latest Australian Taxation Office (ATO) figures show that there are now over 600,000 SMSFs managing the retirement savings of more than 1.1 million Australians.

There are several benefits to establishing an SMSF, including the amount of control the trustees have over their investments when compared to industry and retail superannuation funds. However, the major benefit is the generous tax concessions that compliant SMSFs can access.

For example, SMSFs that comply with the superannuation legislation have their member contributions and fund earnings taxed at the concessional rate of 15% in Australia. This is called the accumulation phase. Once you are over 60 years of age you can access your superannuation tax free, but if you move your super into retirement phase to get a pension rather than taking it as a lump sum, the earnings on the investments supporting your income stream are also tax-free.

Of course, there are rules and conditions attached to achieving this tax-free status for eligible SMSF members, and not understanding or complying with these rules and conditions could see you jeopardise this key benefit. The tax exemption on earnings in retirement phase is called exempt current pension income (ECPI), and you must claim it correctly or miss out.

ECPI is claimed in your SMSF’s annual return when your fund starts paying one or more retirement phase income streams. There are two methods that can be used, the segregated method and the proportionate method. Where the SMSF’s assets supporting retirement income streams are clearly held separate from any other assets, the segregated method should be used.

The proportionate method is used where the SMSF does not set aside specific assets to support retirement income streams and it is the one most commonly used by SMSFs. This method applies when the fund has a member or members in both the accumulation and the retirement phase, and the assets have not been segregated but are all pooled in together.

An actuarial certificate is required from an actuary who calculates the exempt proportion and applies it to income earned in that period, which forms part of the fund’s total ECPI for the year. This is a complex area that can easily confuse fund trustees who are more conversant with investment strategies than they are with actuarial calculations.

Many trustees engage companies such as SMSF Assure to help them navigate the complex administration and reporting requirements of running an SMSF. There are several more issues involved in calculating a fund’s ECPI other than those already mentioned. Getting additional professional expertise for these calculations is preferable to making a mistake and suffering a financial penalty.

The lure of a tax-free status in retirement has been a large part of the growth of SMSFs. Successive federal governments have encouraged this growth so that working Australians can provide for their own retirement rather than rely on the government-funded Aged Pension. Superannuation is one of the best vehicles Australians have to reduce their tax payments while creating wealth for their retirement.