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how to start an SMSF

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Jen, 19th Jul, 2006.

  1. Jen

    Jen Member

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    I know this is a very basic question but I'm prepared to feel a bit silly, so here goes....What is the first step to starting a SMSF? I have always just let it dribble along but the time has come to take control and I'm not sure what to do first:eek:
    thanks to anybody that replies
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

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    We'll you'll need a SMSF trust deed first...

    BUT I guess even before that you need to decide whether SMSF is the right way to go for you. Lot of admin hassle (altho you can outsource some of it).

    Are you comfortable making investment decisions and setting an investment plan (which is required).

    Initial set up costs and ongoing compliance costs are also an issue for smaller balances...

    Just some food for thought...

    Cheers
    N.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    It was suggested to me that an SMSF wasn't worth the effort for superannuation balances of less than $100,000 or so. No reason you can't do it with less I don't think, but the costs of running an SMSF are not insignificant and will eat into your returns.
     
  4. NickM

    NickM Co-founder Staff Member

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    Hi Jen

    There is no hard and fast rule, however i agree with SIm that unless you had $100K you wouldnt set up an SMSF.

    to have the fund administered, ie - financial statements, tax returns + to have the fund audited would cost anywhere between $1500 - $3000 for most funds depending on complexity.

    Some firms promote a cheaper service but i cannot comment on what you do and dont get for your money.

    Based on say a $2000 compliance cost that would equate to approx 2% of the assets of the fund on $100K. If you had only $50K then that would be 4% etc.therefore your return on your investment would have to be pretty good to justify a 4% admin fee.

    Hence why i recommend $100K as a minimum starting figure.

    You should also take some time to read up on what is involved in being a trustee of an SMSF. The roles and responsibilities of a trustee are quite important. The penalties of non compliance could result in 47% of the assets of the fund being taxed if the ATO deem the breach severe.

    This fact sheet may be a good starting point for you
    http://www.ato.gov.au/super/content...001/007/122/011&mnu=2176&mfp=001/007&st=&cy=1


    cheers
    NickM
     
  5. Jen

    Jen Member

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    Thanks for your answers. I appreciate the thoughts and advice.
    I have over 100K to invest and was tossing a few ideas around of how I'd invest the super. One thing I was considering was a private property syndicate (through Gardner & Lang) and/or investing in a managed fund of some sort.
    I'm not afraid of the management bit but obviously would need to have a better return (than passive investment) for the costs and work involved.
    I'll read the fact sheet and reassess my feelings about it - I always thought that the general opinion is that if you manage the fund properly, you can do better and I guess that's why I'm interested in exploring whether it's the way to go or not.
     
  6. KevinH

    KevinH Well-Known Member

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    Well, how about the possibility of using the funds in your SMSF to invest in your own property projects ?
    The advise I have been given, is that it is possible via the right type of trust, for the SMSF to buy units in that trust, with other unitholders who can take out non recourse loans, hence the trust can have borrowings as well as have SMSF funds in it.

    It was also suggested that as a legitimate tax minimising method, you have up to $50k contributed to your SMSF in lieu of taking that as income, profits, directors fees, etc. thus taxed at 15% and not the marginal rate.
    Obviously only a good idea if you have a fair bit of income that need to be 'tax' minimised.

    On the basis that you are continuing to invest in property, it is more tax effective to do this via the SMSF, even though you can't access the proceed till retirement, as you can still control where the funds are invested, and rolled over once projects are completed. And profits are taxed at 15%.

    I still need more advice and more details, but on the face of it, it has merit..

    This crowd are offering to set up SMSFs' as well as discounts on managed funds.
    I haven't used them yet, but I am making enquiries..

    http://www.fundbroker.com.au/Pages/self_managed_superannuation_fund.html

    Kevin
     
  7. Jen

    Jen Member

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    Thanks Kevin, that site looks promising - I'll follow them up and "suss them out."

    "The advise I have been given, is that it is possible via the right type of trust, for the SMSF to buy units in that trust, with other unitholders who can take out non recourse loans, hence the trust can have borrowings as well as have SMSF funds in it.

    It was also suggested that as a legitimate tax minimising method, you have up to $50k contributed to your SMSF in lieu of taking that as income, profits, directors fees, etc. thus taxed at 15% and not the marginal rate."


    Are you saying above, that my SMSF could buy units in, say, our HDT? That's a really flexible idea if I have understood you properly. Of course I realise that I'd "seek professional advice first" etc!
    Jen
     
  8. KevinH

    KevinH Well-Known Member

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    Na ah....not quite.
    The SMSF can buy units in a specific trust that has been setup for this purpose...not your HDT.

    But to complicate things, your HDT can also invest in this purpose set up trust, by being a unitholder.

    The trust is the vehicle which allows you to pool a number of unitholders, including the SMSF funds as a unitholder, and in return this trust completes your project/property development, etc.

    There asre specific requirements with regard to the trustee of this trust to satisfy ATO audits, etc.

    I don't think in terms of 'my HDT' or 'my properties' as this is more appropriate for pooling a number of unitholders to tackle larger projects ( which is what we are currently doing)

    I am still getting 'proper' advice towards putting one in place, hence my vagueness towards the details.( sorry...)

    I would guess that many accountants or even lawyers would not be aware of the arrangement, as with HDTs', which only a handful seem to understand.

    Kevin
     
  9. qlds007

    qlds007 Member

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    Jen

    I would be seeking professional advice prior to instiagting such action as Kevin has recommended

    The SMSF can buy units in a specific trust that has been setup for this purpose...not your HDT.

    "But to complicate things, your HDT can also invest in this purpose set up trust, by being a unitholder.

    The trust is the vehicle which allows you to pool a number of unitholders, including the SMSF funds as a unitholder, and in return this trust completes your project/property development, etc.

    There asre specific requirements with regard to the trustee of this trust to satisfy ATO audits, etc."

    As you will find that the falls under the Anti Avoidance scheme section of the Superannuation Legislation Amendment Act (No.4) in relation to in house assets.

    Penalties upon the Trustees are now quiet extensive.
     
  10. TryHard

    TryHard Well-Known Member

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    Just for info, we considered moving to one of the 'cut price' services for our SMSF (about $650 pa) from a previous acct charging around the $1,200-$1,500 mark as we were pretty vanilla/unexciting direct shares and no need for high end service.

    However when the paperwork arrived, the way it was worded made it obvious there would be pressure to invest in vehicles heavily promoted by the accountancy firm involved. In other words they supplement the low fees by aggressively chasing commissions from investments they push out there. At least that was the way we read it.

    In the end it made more financial sense to use the services of Strategic Wealth (NickM) ... the fees are higher but there is no hard sell and we know the aims of the fund and not the bottom line of the accountancy firm are the driving force.

    Cheers
    Carl