How does SMSF work?

Your super benefits will still be held in trust until you meet a condition of release, but with a SMSF you are the one controlling the trust, not some fat man in a suit in a high rise somewhere.

 

Who could theoretically **** it up more effectively than I could for myself.

 

The benefit of an SMSF over other super funds is control.

With control comes responsibility.

To run a successful fund, I believe you should be good in the following areas.

1. Paper work management.
2. Know what you are doing in terms of investments and how asset classes work EC..
3. Know the SIS Act requirements. Go the ATO website and find the SMSF audit report. Go to the last pages and you will see a list of the SIS act sections the auditor signs off on. Get an understanding of these.

An SMSF takes more time than just putting your super with another fund. Along with dealing with the investing side of the fund you will need to organise the preparation of the Financial accounts, tax return and engage an Auditor (most accountants will help you here).

An SMSF can be rewarding but if you do not know your responsibilities and the SIS Act it could also cost you a lot.

 

Why is it that many people advise against Residential Property within SMSF? I'm looking at a new townhouse that will provide positive cashflow, and later diversifying that cashflow into shares.

 

Its a great mystery, but a SMSF cannot tap into equity to further leverage and without leverage property is only an average investment. Also it is very complex and higher entry fees and ongoing rates.

 

My wife and I have just setup SMSF. Combined we had enough to make for a healthy kick start. Some of the pros that convinced us:

• Up to 4 trustees, my wife and me.
• One set of fees, not percentage based.
• Invest where we want
• Insurances can be paid by smsf, most of them anyway.
• Can another vehicle to purchase property.

 

Explain the trustee declaration and each element of s52 and I will add a smiley.

 

I will pass your request onto my financial planner and accountant.

 

??? If that is your investment strategy then there are no issues. Sadly some SMSF trustees dont consider strategy and cashflow and may just jump in over geared seeing the opportunity to use super as a scheme to make $. SMSF strategies are numerous and each one varies.

 

Nothing do with either of them. You must understand it. Word for word. And its not my request. Its law.

 

No smiley you failed.

 

I do like that you understand the fixed nature of SMSF costs. But the value of the fund determines if its practical. ie $2500 (audit tax asic and other) pa seems great if the fund is $400K (.625%) but terrible at $100K. A common problem with small funds is contribution consumption where poor returns chew up contributions so that the fund does not progress.

 

Agreed. Fortunately for us the combined super accounts along with 24% wage contributions along with returns over time will make sure the cost of managing will be absolutely minimal.

 

Brilliant. Well done.

 

What is generally regarded as the minimum starting amount to be worth going into this, 200K?

 

I think in ASICs opinion a SMSF needs around $200k for it to be worthwhile.

 

Well done Raydar on getting your super moving!

SMSFs are about choice and flexibility - just ensure you understand your obligations and your planner and accountant who would have issues the deed and strategy - should explain the terms to you clearly.

I assume you chose a Corporate Trustee structure? this is strongly preferred and if not, I would be asking questions from the person that recommended the SMSF as to why not.

Ensure you have a copy of ALL documents on file. Keep them electronically too.

Re the ASIC release, I strongly disagree with ASICs stance. Here is a Townsend article
http://www.supercentral.com.au/uploads/general/7 Reasons Why ASIC.pdf

A bit like the Boo'ing of Goodes, don't tell someone they can't do something - or they will. There is no minimum balance - its up to the person within their fund, and their investment strategy will dictate what they invest in - as long as you diversify (commonsense approach).

Cheers Ivan

 

Yes, thats exactly how it is setup. I had many conversations with the accountant and financial planner before hand. Would you are to elaborate as too why?

 

Sonamic the prime reason why investors start a SMSF is "investment choice".

With the benefit of being able to borrow inside your SMSF in order to purchase residential / commercial property many investors look to implement such a strategy in order to give their Super Fund a leg up.

 

Thanks Richard, and all others who have replied. Maybe with the APRA changes the choice that SMSF offers will become a more popular option for those suddenly at the limit of their own name Borrowings.