SMSF for Dummies / Beginners

Discussion in 'Superannuation, SMSF & Personal Insurance' started by William Oor, 11th Jan, 2022.

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  1. William Oor

    William Oor Active Member

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    Hi.
    Currently considering SMFS but have no idea on the pros and cons.

    From what I can see primarily it will offer flexibility in how you invest your super money.

    At moment I am 55 years, and was planning to invest as much in super between now and 60/65, to take advantage of personal contributions TAX breaks.

    Then when I have access to super at 55 years, I can invest elsewhere, pay off mortgage etc.

    My main reservations on this strategy is:
    1. All eggs in Super basket for next 5 years. Should I spread personal contributions elsewhere, eg Indexed Funds, investment property.
    2. Not having access to the additional contributions during that 5 year period.

    The TAX advantage with personal super contributions at 15% v 30% (marginal tax rate). Seems like an easy option.

    So weighing up, easy option v something with more flexibility although that requires knowledge. Hence the question.

    Note:
    Currently with AustralianSuper (balanced option), and looking at what members direct can offer.
    Member Direct | AustralianSuper

    Any input appreciated.
     
  2. Hockey Monkey

    Hockey Monkey Well-Known Member

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    What do you intend to invest in?

    I recent setup an SMSF for some specific reasons which made sense for our balance and life stage, but for most, pooled or direct industry funds are going to be a simpler cheaper option if they offer the investments you are after.

    In 5 years you could meet the condition of release and access your super tax free
     
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  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    A SMSF pays the same tax rates as any other super account or fund. Contributions etc arent limited, enhanced or affected by a smsf v any other type of accumuation super fund. The same caps apply. You can do all this without a smsf and the fund will do all the admin and reporting. For example the deduction notices. The one thing a smsf can do some fund choices dont allow is ember choice.

    The issue is often one abut costs. SMSF costs are largely fixed and dont vary much whether its a $100K fund (VERY SMALL) or $1m. + If I said it will cost $2500 a year for a smsf then thats akin to a 2.5% fee for a $100K fund which is VERY high. Or its .25% at $1m which is very low v's industry funds. But there are things a smsf cant do. Like get cheap insurance. Or diversify broadly. And a sole member smsf may be a disaster. What happens if you get a disability or a illness or die ?

    I would be considering your industry fund investment choices in that fund, or another, before deciding that a smsf is the correct option. Aftre all what makes you think you will outperform a multi billion dolalr fund who empliyer and contracts with very experienced managers ? They hedge and use risk management tools. A SMSF cant. Your outperformance may be like going "black" at a casino. Going all in may be a terrific outcome but I argue one day you may wake and find the market wasnt thinking what you were and it has crashed.

    Read the fund PDS and if doesnt make sense then a smsf will be harder still.
     
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  4. Ross Forrester

    Ross Forrester Well-Known Member

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    If your with Australian Super go to their free webinars and they go through a lot of good information there.

    SMSF's are great for flexibility and a lot of other superannuation funds are also giving good flexibility. An investment advisor in these instances is a good person as they are across the range of super platforms.

    You are on track for the tax benefits in superannuation. Make sure you do not forget about the tax advantages of concessional "catch up" contributions.
     
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  5. William Oor

    William Oor Active Member

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    @Hockey Monkey, @Paul@PAS and @Ross Forrester thanks for the replies, and pointers.

    I plan to:
    - Australiansuper webinars sound good.
    - I will then understand options within that fund.

    - thanks for reminder on concessional contributions catch-up.

    Regards,
    Alan
     
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    A paid session with their advisers after the freebee is often a good step. Its not that costly and will help you make "plans"
     
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  7. structurelover

    structurelover Well-Known Member

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    What would you like your super invested in?

    1. Mixed bag (Conversative, Balanced, Growth funds?)
    2. Index Funds only
    3. Stock picking (expert mode??)
    4. Property investing (requires leverage, unless your super has enough funds to buy a property + stamp duty + ongoing costs like agents, rates etc)

    I personally am in the camp of option 1 and 2.
     
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  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Your age should always be a factor. eg a person 30 should have a completely different investment risk profile to someone aged 60. A person aged 60 may be too late to take a massive hit and recover it. Strangely many people are leaving industry funds who use age based risk tapering strategy under simple super to address that issue. They flee the more conservative return and even limited hedging that arises from this and chase higher ""all in"" risk. I remain of the view there will be many tears shed over the view that index funds only go one way and are seemingly "safer". They arguably have as much or more risk than the prevailing position within when markets correct. When markets correct they will likely be smashed harder that the index itself with low demand for holding a broad index position and investors may seek to pick quality over indexes. Foreign index funds may be even worse with a dual effect of a currency impact in addition to the market loss.
     
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  9. Never giveup

    Never giveup Well-Known Member

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    Are there companies who can set up SMSF with corporate trustee and assist in all the official documentation - no loans involved but roll overs and non concessional contribution will be made.

    Checked smsf ware jouse and other similar cleardocs etc but I am unsure about some of the questions/processes.
     
  10. Ross Forrester

    Ross Forrester Well-Known Member

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    Most accountants and lawyers can help prepare execution documents.

    if you want advice if a smsf is right for you then am investment advisor should be sought - and investment advisors can also set up smsf and hep with the investment strategy, insurance policies and explain if you should transfer money in or not.
     
  11. Never giveup

    Never giveup Well-Known Member

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    Hi @Ross Forrester

    Always helpful, thank you
    I found this article online

    Getting A Statement Of Advice For Your SMSF | Liston Newton





     
  12. Jem1989

    Jem1989 Active Member

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    Hi all,

    Ive recently purchased a property using my smsf and now in the process of getting a landlord and building insurance?

    My question is, should the policy be in the name of the corporate trustee of the bare trust? Or should it be the smsf trustee?

    Thanks in advance.
     
  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yes. It is the legal owner. Insurers will only insure a legal owner generally. The SMSF has a beneficial ownership through that trust.
     
  14. Jem1989

    Jem1989 Active Member

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    Thanks Paul, so is it the SMSF trustee? Im just confused whether it should be SMSF trustee of the SMSF, or the Corporate trustee of the bare trust (which is what's on the contract of sale).
     
  15. Terry_w

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

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    The legal owner of the property is the one that contracts. that would be the custodian trustee
     
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  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I answered the first question.

    You asked two questions which are contrary so if one is a yes the other would be...no.

    The legal concepts behind a smsf limited recourse borrowing are quite straight forward. The LEGAL owner is the custodian trustee. The bare trust deed contains a clause to hold the property on trust UNTIL the loan is discharged and then to transfer the legal interest to the trustee as then the smsf trustee is absolutely entitled to call for its property. The legal owner should hold the policy for its property. If legal title is handed to the smsf then the smsf trustee will insure it.
     
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  17. Jem1989

    Jem1989 Active Member

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    Thank you Paul@PAS and Terry_w
     
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