SMSF- How do I start?

Hi All,

After some advise/guidance here please. Set ourself a goal of starting SMSF by end of this year. Why end of the year I don't know (just random date) not discounting an idea of starting earlier.....

Background: couple in mid 30's total super is around 120K. Plan is to invest super money in res. Property, shares, MF, Peer to Peer lending and/or any other investments. We have portfolio outside of super and believe we can do better ourselves than fund.

Biggest hurdle is I don't know any thing about SMSF and prefer to do my homework as much reading as possible to get some ideas on what to look for. I will get assistance from required professionals to set it up however prefer to have some understanding rather than following some advise blind folded...

Arranging Life/TPD, Income insurance seperateley is another hurdle but decided we can either continue running existing fund with smaller amount OR buy those outside. Yet tomake mind on this....

Currently as being highest earner I salary sacrifise max to bump up my super and thinking of changing investment option to low risk for all future contribution so atleast protect the extra sacrifised $$$$. Prefer not to change the existing $$$ investmet option due to volatility as don't want to get out at bottom of the market. Low income spouse super is invested in high risk as well and not sacrifising anything extra.

So where do i start, all of you who've set up SMSF how would you handle this if you get to do it again please. what mistakes would you avoid? any recommendations on what to read??

any feedback +/- welcome...

cheers

 

@Redwood would be the man to talk to! He knows his stuff!

 

Biggest thing is read as much as you can on SMSFs and the Pro's & Con's for your particular goals/strategy.
Also try to engage family or friends who have set up their own SMSF and have had it up and running for a few year's.
I have taken the plunge after researching options since July last year and are currently in the midst of setting up my SMSF through Ivan @Redwood who is based in Victoria.
As with lending outside of Super the rules for borrowing in your SMSF are also a changing landscape as well.
Good Luck

 

Get a couple of books on the topic and read them before doing anything. I think a good one is by monica rule.

 

This the one @Terry_w ?

 

Yep

 

Hi @S0805

Think carefully before investing your super in Peer to Peer lending. It's unsecured lending. Not sure the SMSF accountant and auditor would be satisfied that was responsible allocation of your retirement money.

You will want an accountant that has looked after loads of other SMSFs.

As for the setup... a lawyer can set it up, though often an accountant does it for you and orders it from a lawyer behind the scenes. Be sure to have a corporate trustee rather than personal trustees. Most lenders will expect a corporate trustee if you wish for your SMSF to apply for a residential property loan. Also with personal trustees, you must have at least 2... which raises a distressing headache when one person passes away and the fund is suddenly non-compliant.

 

Have a look at some sites such as

ESuper
Superplus





Welcome to the Self-Managed Superannuation Fund Trustee Education Program!

The Self-Managed Superannuation Fund Trustee Education Program has been released by CPA Australia and Chartered Accountants Australia and New Zealand. This service has been provided free to members and trustees of self-managed superannuation funds.

This program is designed to educate trustees of SMSFs throughout Australia. It is designed according to the Australian Taxation Office’s Trustee Declaration form to assist trustees in understanding their role and responsibilities. It has been approved by the ATO as a course of education for education direction purposes.

Free Self Managed Superannuation Fund Trustee Education Program

 

P2P lending may well not be an approved investment where it is speculative. Now I'm sure many will argue that provided the investment strategy for the fund (s52 SISA) deals with the investment then its OK even if its unsecured. Not true. The old adage of risk / return trade-off is quite true and just because its a new economy activity doesn't make it safe. Far from it - Others will seek to profit at your loss.

Neither an accountant or auditor can advise on investment strategy as it encompasses financial advice. Step one to establishing a SMSF is to get / confirm etc financial advice. Its like thinking you can save $ by operating on yourself.

The ATO has some excellent publications dealing with SMSF formation and the issues associated. Insurance for a SMSF will be VERY expensive v's existing fund and bypassing it may be a serious risk. The annual operating costs should not be underestimated. These costs are generally fixed and don't vary much with balance unlike other forms of super. I wish I had a dollar for everyone who thinks they can outperform financial experts. I see many smsfs that don't !!

I would query how a fund may be diversified and involved in property with a low $120K capital. The SMSF loan rules require a adequate buffer for other costs etc and this should be carefully explored before falling for the belief that a property can be acquired.

 

Beware of sites such as esuper and superplus and loads of others. They make a living from selling their position that they are a cheaper than /...... They make $ from a stream of product sales and fees and its often not as clear as a PDS from say an industry fund. ASIC have been involved trying to limit promotion of free setups etc as misleading. Tread carefully.

 

Hi Paul

Whom do you suggest to look at for a SMSF nowadays?

 

I have been trying to close my eSuperfund account for nearly a year. It is not fully closed yet. My observation is that it is very easy to start and eSuperfund account but their process for shutting it down is not correct and it is very difficult to arrange.

 

Thanks all for the information. It looks i am in the right mindset to begin this and will commence all the readings as much as i can. @Terry_w , @Coota9 , @Paul@PFI thanks for the resources....Much appreciated

 

thanks. Unfortunately not anyone in family/colleagues I know are doing this. In fact, my friends circle hardly talks abt fin things. Closet I've is the PC community . I get your point of about Govt changes in this area however as a family we decided we will never control these changes and as we are in
for long term we should be covered and will make most of what rules are available.

 

thanks Jacqui I've heard this number of times in this forum where corporate trustee is preferred over individual don't know the detailed reasons but I gather (from little reading) individual is simple, cost effective option but corporate seems to provide better opportunities in long run.....wat are your thoughts???

 

Paul, thanks for the feedback. Just so I understand yours and @JacM response are there any only certain type of products allowed to be invested via SMSF...and P2P is not part of coz its unsecured loan??

I get your point that 120K may not be enough hence the idea is to bump up my super as much as I'm allowed and atleast bring it to 160K before SMSF starts. We believe that figure can be achieved by end of this year. Is there set rule on 10% buffer is required or something for SMSF ? We've monitored our funds and think that DIY way we'll give us more control and options on what to invest in. We've portfolio outside super of IP's, Equities and wanting to do the same and add more creative investments (MF, ETF, etc...). For insurance we'll consider either to leave existing fund open or buy those outside.

 

@S0805 get a corporate trustee.

If you intend to get property in super, you'll probably have to have a corporate trustee in order to secure a loan anyway.

Don't over think it.

 

@S0805 I'm not convinced your SMSF accountant and auditor would allow P2P in the SMSF investment strategy.

 

Not quite. P2P may be OK but it could also be a problem. The ATO recently had a article on the emergence of high risk investments which appear speculative such as P2P

The issue is dealt with in the terms of s52(2) SISA
SUPERANNUATION INDUSTRY (SUPERVISION) ACT 1993 - SECT 52 Covenants to be included in governing rules--registrable superannuation entities
ATO can argue that such diligence wasnt satisfied when a loan is unsecured and high risk or a spec investment. I qualified a audit once as hedge positions had no natural asset risk - currencies. ATO agreed and imposed penalties. I was unsure and reported it for them to deal with. These days many (not all) auditors will do that - It doesnt have to be proven wrong to be reportable.

Speak to a broker who knows SMSF loans such as Shahin. 10% wont be enough. Typically a property needs to be neutrally geared in a SMSF to avoid incineration of contributions every month shrinking the fund by the month. That will mean a lower LVR often in range 50-60s % but depending . Add the cash buffer and legals and duty and setup costs and it does get difficult for smaller funds. Apra rules make it hard to get approval for these now. Doesn't mean they cant. Lenders wont lend on small apartments either !!

 

We did it and the best advise that I can give is

1. Read and discuss it as much as possible before

2. Get the right team of professionals to assist
We had our financial planner check over the accountants work and vice a versa

3. It takes a little effort to keep on top of the paperwork unless you outsource

4. Don't place all your money into one asset class

Best of luck with it.