29, want to get into SMSF, not sure where to start

Discussion in 'Superannuation, SMSF & Personal Insurance' started by wunderwhat, 29th Mar, 2017.

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  1. wunderwhat

    wunderwhat Member

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    Hey guys,

    I'm 29 and have a super with Colonial First State and want to get more control over my super and wanted to look into SMSF but I'm not sure where to start and how to best run this.

    From my basic knowledge, I manage it myself, but I still need to use a broker or service provider?

    I've bought property and shares on my own, but I am missing the link as to how SMSF work to join these dots.

    Can anyone point me to an idiots guide to understanding and process of transitioning to a SMSF?
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A SMSF is a trust. With a SMSF all members must be either trustee or directors of the trustee company. It will be the trustee that buys shares and invests the trust money. If buying shares on the ASX the trustee would need a broker account like comsec and would buy the shares like normal.

    The main difference is that a SMSF is heavily regulated and there are many laws which apply to a SMSF that do not apply to a non super trust.

    Best to start off with one or more recent books on SMSFs - make sure they are recent.
     
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  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    First up, you need to understand that the compliance and accounting costs of operating a SMSF are pretty high - general recommendation is that you'd need to have around $200K in super to make a SMSF worthwhile (although in reality I think you can get away with quite a bit less).

    Are you familiar with how trusts work? A SMSF is just another ownership structure - comparable to buying investments in a company structure or a trust structure - but obviously an SMSF has very strict rules about how the money can be invested and used and when you can draw down on it.

    Basically, once you have your SMSF set up, you'd request a rollover from your existing super fund(s) which would see a bunch of money end up in your SMSF bank account (essentially your super balance).

    You then invest that money just the same as you would normally (write cheques or do EFT to your share broker or to a managed fund provider or term deposits etc) - but the money comes out of the SMSF bank account and if you sell assets or receive dividends that aren't automatically reinvested, that money will get deposited into your SMSF bank account for you to invest (or hold as cash).

    You prepare a tax return for your SMSF each financial year - just like you do personally, with the additional task of having your SMSF returns audited (your accountant/tax adviser will typically take care of arranging an audit).

    At the end of the day, operating an SMSF is just as easy as investing your own money - indeed there's nothing to stop you from transferring all the money in your SMSF into your own bank account and spending it ... other than the fact that you'd probably go to prison when the ATO found out (don't ever, ever use SMSF funds for personal use!!!) :p That's something to be very careful of - if you also have investments in your own name, make sure that you keep good documentation so you don't confuse which money belongs to you vs which belongs to your super fund.

    Your SMSF will need to have an investment strategy (this can be fairly broad) and this is part of what gets audited - but a strategy such as "I'm going to invest all my super into bitcoin" is likely to cause some very close scrutiny.

    While it is possible to use a discount service provider to get an SMSF set up cheaply and quickly - I don't generally recommend this since there are so many gotchas with an SMSF where breaking the rules can have serious consequences. Best to engage an experienced adviser who is licensed to deal with SMSFs and rely on their expertise to guide you.
     
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  4. KayTea

    KayTea Well-Known Member

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    I was really lucky - I had someone guide me through it, step-by-step, and who clued me in to potential pitfalls etc (which stopped me from making some errors - things that weren't obvious at the time, but could have caused problems down the track, when it would have been too late to fix them). There are so many hoops to jump through and boxes to tick - I found it quite a mammoth undertaking.

    If you've got someone who's already done it who can help you out, I'd highly recommend asking for their assistance. I consider myself pretty switched on, and figured it wouldn't be too bad (having purchased IP's and shares etc outside of super), but it became a whole other ball game doing these things within the SMSF structure.

    And be prepared for it to take a while (it's certainly not a quick process).

    Best of luck.
     
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  5. Gockie

    Gockie Life is good ☺️ Premium Member

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    Consider ING Direct super - you get full control of share purchasing in your super, without being a SMSF. However they will soon start charging higher fees (0.5%) than they had before. Still, it's simple, there's no compliance and paperwork issues....
     
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  6. Hodor

    Hodor Well-Known Member

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    With the changes I am looking to leave the ING product, I don't believe it offers value with the changes.
     
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  7. Rakhi Withanage

    Rakhi Withanage Member

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    I would start with quite a bit of research https://www.moneysmart.gov.au/superannuation-and-retirement/self-managed-super-fund-smsf is a good start.

    Then once you are comfortable with this work out how much it might cost to set up and on an ongoing basis. E.g. SMSF set up, corporate trustee set up, ongoing tax return, audit each year and government charges etc. Once you have worked out the costs compare them to your existing super fund and work out if it would be worthwhile.

    If your main objective is to borrow to buy property then best to speak to a broker to work out how much you may be able to borrow. If your main objective is to buy shares you can do this through a number of retail and industry super funds so depending on your fund balance it may not be worthwhile.

    Another thing to look at is your existing super fund probably has some kind of insurance attached. E.g. life, total and permanent disablement and income protection. By switching funds you will lose this cover, so you want to make sure that you set up cover in the SMSF first before you rollover/cancel your existing.

    I would also seek advice from a suitable financial adviser as it is very easy to make mistakes which could be quite costly. ATO can enforce significant financial penalties on SMSFs with non-compliance and even criminal penalties.
     
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  8. retirealready

    retirealready Member

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    Something close - DIY Super for Dummies
    It is a few years old but still quite relevant. By the time I came across that book I've already research plenty on SMSFs so it seemed a bit too basic but nevertheless a good book.

    Also read at least a few dozen articles from Guide to SMSFs (Self managed super funds) It is a fantastic resource for understanding the possibilities and responsibilities of SMSFs.

    Once you have a good understanding of SMSFs start reading from SMSFAdviser Magazine - News for Australian SMSF professionals
    It is primarily targeted at SMSF professionals but most if not all articles are easy read and will give you an idea of the constantly changing compliance landscape and what to look out for.
     
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