As the number of self-managed superannuation funds (SMSF) continues to increase, so too does the complexity of our superannuation regulations, which seem to change every few months. It is increasingly obvious that a lay person with only a minimal understanding of how to manage an SMSF will quickly run into trouble.
However, don’t let this deter you from setting up your own fund if you would like more control over saving for your retirement. Once the fund is established, complexities related to administration and reporting can be managed to ensure it continues to be compliant with Australian Taxation Office (ATO) requirements.
There are significant benefits to be had for those who can meet the criteria, so the best place to start is with the ATO website where there is up-to-date information. Bear in mind that an SMSF must be established with the sole purpose of providing retirement benefits for the members or their dependents. Here are just a few questions to get you thinking more deeply about the issues:
Is this genuinely your purpose?
- If you are planning to incorporate some other investment strategies into your fund that are too short term to be considered as retirement investments, you will quickly come to the attention of the regulator. For example, buying art works could be thought of as a long-term strategy, but if they are hanging in your home, the purchase through an SMSF is illegal.
Do you know how to structure the fund at the outset to get the most benefit out of it?
- There are two structures that meet the criteria for a compliance SMSF. The first has up to four individual trustees and the second is a corporate trustee, which is a company acting as a trustee for the fund. You must ensure you choose the structure that suits your fund, as there are differences in several key areas. Member and trustee requirements differ between the two as does cost, the ownership of fund assets, the separation of those assets, penalties and succession.
The initial setting up of the fund costs money but there are also recurring costs that must be met. Do you have the funds to take on this commitment long term?
- It is difficult to give any estimate of the cost of setting up and running the fund over the many years it is likely to be in existence. Initial set up costs are just the start. There is the cost of an independent annual audit, a supervisory levy, regular asset valuations, possible legal fees and the cost of insuring the members.
Do you have the time and the skills needed to keep on top of the administration and compliance requirements?
- There is a considerable number of administration and compliance tasks to be done, many of which are time sensitive. The SMSF annual return, for example, is your responsibility and must be lodged after the audit is finalised. There are fixed time frames for lodgement and failure to do so can result in penalties and the loss of the fund’s tax concessions. Doing the administration yourself will eat up large blocks of your time, and if you are already busy, you could easily overlook some key task or deadline.
Are you ready for the pressure of being responsible for the performance of the investments and what that will mean, long term, for the retirement plans of its members?
- First, you will need an investment strategy. This must be in writing and needs to be reviewed regularly to check that it is still consistent with the purpose and circumstances of your fund. (This is one of the administration tasks already mentioned.). You will be deciding on issues such as investment diversity, the liquidity of the assets held in the fund, how the fund will meet the financial demands of retiring members as well as any on-going costs and other issues. This is just the start as you monitor these investments and worry about their performance.
These are just a few of the initial questions that you should be asking when considering setting up your own SMSF. There are many more, all dealing with some aspect of fund management and how they are viewed by the ATO. If you are already considering giving up however, remember the earlier mention of a way in which this can all be managed so you can still have your own fund.
The good news is that there are many professionals in the field similar to SMSF Assure who can assist you. They have a team of experienced people who can take the guesswork out of setting up your fund and put you in touch with a financial advisor who will assist with your investment strategy. Then they will look after the administration, year-end and regulatory work and provide on-going advice. Thousands of SMSFs are now being managed in this way. Why not yours?