SMSF Setting up a company

Hi everyone we've decided to set up a new company to run our SMSF through rather than our other company with businesses through it. I assume the cost to setup the company will be a personal expense and than the following ASIC fees will be able to be payed out of the SMSF. Is this correct? Thanks in advance

 

Hi @MBowen

SMSFs cannot run businesses and as such the original company could not have been used. Also when a company is set up it must be clarified whether or not it is to be corporate trustee of a SMSF. In other words, a new company is really the only option. Not sure I have misunderstood what you were saying?

ASIC fees associated with Pty Ltds of a SMSF are indeed paid out of the SMSF.

If you already have an SMSF with personal trustees and are converting to corporate trustee (Pty Ltd) the trust deed will likely need an amendment which will require lawyer involvement. Ensure your SMSF accountant is aware of your intentions - he/she can likely point you in the right direction of suitable legal folks.

 

Sounds like you are talking about setting up a company as trustee of the SMSF. You could use an existing company that is running a business but it would be a very bad idea to do so. It would be a SMSF expense not a personal expense. Make sure you set up the right type of company to get significantly reduced ASIC fees.

Make sure you get legal advice.

 

Hi Guys yes we wanted to start a new company as the corporate trustee of the SMSF. We weren't sure its been a while since we registered our first company. I thought you had to pay before it was registered(obviously we won't have access to the super until its all been setup)? Or has it changed since SMSF became more popular? Thanks for the replies

 

It depends which accountant/auditor you ask. Some will say the fund can reimburse you for the setup up costs, same will say no. It also can depend on timing (Invoiced after or before setup ec..) The only clear thing is, it is not a tax deductible expense and you also can not write it off over 5 years (as a black hold expense, as the SMSF is not a business)

So if the accountant/auditor lets you do the reimbursement, it should be written off 100% in the first year as a non taxable expense. (ie not claimed in tax return).

Yearly ASIC fee is fine to be claimed in the SMSF.

Good idea to have a separate company as trustee. Do not forget to let ASIC know that the company is only a SMSF trustee. SMSF trustee companies get a reduced ASIC fee each year.

 

A special purpose SMSF Trustee company would incur a far lower annual ASIC fee. It has a special constitution. The fund will pay the fee. I'm unsure if the recent tax changes allowing company setup costs to be deductible apply to a SMSF Trustee. I suspect someone will seek guidance in due course. I have doubts as the tax law changes relate to establishing a business.

 

Hi @MBowen just be sure you've got a SMSF accountant guiding you. I'll drop you a PM with a recommendation. Sounds like you're trying to navigate the world of SMSF setup by yourself and you don't need to.

 

And hopefully they have an AFSL too.

 

Paul - they don't need an AFSL to establish an SMSF.

Remember your SMSF is a separate strategy than outside your SMSF. Always use a corporate trustee not a individual trustee and the SMSF Trustee should not be trading. It will be a special purpose company and will incur a reduced fee for the privilige - $45 instead of $243 for a standard company. The company will not have its own ABN/TFN the SMSF will. Once more don't mix your personal affairs with your SMSF, older SMSFs make this mistake so often...

Re the set up cost, keep it clean and have the set up cost paid from the fund upon completion of rollover (if an accountant is setting up the fund), however your establishment cost can be reimbursed but is not deductible as Property Hoarder stated.

Hope that helps

Cheers, Ivan

 

Technically true at this point of time they may advise on the establishment of a SMSF. But without an AFSL they cannot discuss anything relating to benefits, rollovers, contributions, insurance, strategy relating to these matters etc. It can be like contracting a one armed painter. It would be foolish for anyone to consider setting up a SMSF without understanding these matters as the financial elements are critical. It is a financial product after all.

A simple example I regularly see....Someone wants to setup a SMSF to buy a property. They then realise that their employer wont allow SGC contributions to a SMSF throwing the serviceability and strategy into disarray. The other big mistake some make is to rush into rollovers only to realise the cheap life cover from their former fund will cost substantially more or even be difficult to obtain.

 

Only lawyers can set up companies and trusts. These set ups involve deeds which can only be prepared by lawyers, but they also involve advice about who should be trustee, who should be a beneficiary, structure of the trustee, terms of the trust etc.

This is evidenced by Legal Practice Board v Computer Accounting and Tax Pty Ltd [2007] WASC 184

The mere inserting of a name into a deed prepared by a lawyer is also legal advice.

See the ATO's decision impact statement https://www.ato.gov.au/law/view/document?docid=LIT/ICD/CIV1106of2007/00001

Neither accountants or tax agents, or financial planners can set up trusts/companies/SMSFs. That fact that the majority do doesn't mean it is right.

 

The DIS just refers to the issue that the ATO basically ignored the decision in the case. The case did focus upon the manner in which CAT promoted itself as preparing the smsf deed and constitution etc. CAT "prepared or drew trust deeds" and this was the factor crucial in the judgement. There was no submission that CAT acquired the deed but basically used a template. Hence I would agree with that judgement.

This decision does not relate to a accountant or any other person acquiring a deed from a firm which uses a deed prepared etc by a lawyer.

And a lawyer cannot complete the form etc to elect to be a regulated fund unless they are also registered with the TPB. The ATO form clearly permits a tax agent to do so. It is a tax agent service.

I would agree "Only a lawyer can prepare a deed or provide legal advice in respect of a trust or company constitution or advice relating to its formation" but I don't agree that only a lawyer may establish a smsf, trust or company.

 

Paul - more than technical it is True - and has been the case for many years under the Accountants Exemption. Chartered Accountants etc to advise on the establishment of SMSFs as well as other matters such as contributions. This exemption will end at 30 June 2016 and be replaced by a Limited AFSL. Most accountants are slow on the take up of this and will get moving by March.

We set up hundreds of companies and SMSFs a year. The deeds are provided by lawyers with legal liability protection.

Cheers, Ivan

 

Assuming the accountant is just doing a clerical function of inserting names in deeds prepared by lawyers, what happens when the client says who should be trustee? What does an appointor do? What if they ask for a clause to be explained?

 

Yes Ivan but the accountants exemption does NOT cover contributions, rollovers etc. Most accountants also don't provide the appropriate notice anyhow.

The uptake for the limited exemption has been slow. The limited exemption isn't a total solution but a leveller. A license will become a requirement. It may confuse many about what each license means though. ie Limited license cant give product advice (ie Limited Recourse borrowings, insurance, investments etc but can advise on a SMSF establishment.) Its like planners becoming reg'd with the TPB. It doesn't make them a full tax agent.

Don't believe that legal liability protection story. You must successfully present a case for negligence. Their insurance does not cover you. It covers them for the cost and damages. You have to beat them and their insurer with a successful claim. And for you to incur a loss your client may have to sue you. A WA lawyer who used to do webcasts used to say that same thing until the WA Law Society asked him to stop. All lawyers who practice must hold PI and it covers all they do.

 

The accountant's exemption only covers a few things, incidentally.

The setting up of a SMSF is a grey area for advisors. I think they are best set up by a lawyer and an AFSL holder jointly. I have given up my authorised rep status as an AFSL holder and no longer set them up because of all the extra bits - which would be provision of financial advice.

 

The above shows the confusion around the current state of SMSFs and good luck being a victim of ASIC shadow shopping. I probably have 5 discussions a days walking the fine line. This covers the current state of play until 1 July 2016 - the accountants exemption has been clear to me for years
CORPORATIONS REGULATIONS 2001 - REG 7.1.29 Circumstances in which a person is taken not to provide a financial service

We are appropriated covered and satisfied with the legal deeds 'story'. Accountants can cover insurance risks. There is a difference between now and 1 July, and most accountants won't bother with the new world post 1 July. Will be interesting to see what happens. Anyhoo - thread moves on.

Cheers Ivan

 

Ivan

I think you are misunderstanding these regulations.

Reg 7.1.29 isn't a general exemption for accountants to provide financial advice. Accountants cannot provide insurance advice other than as outlined as sub reg (3)(b) - generic financial products. You could not advice how much insurance is needed or specific policies be taken out.

A non licence holder couldn't give financial advice such as recommend to a trustee of a SMSF or an individual to buy shares, and this reg provides no exemption. Recommending an investment strategy is also a no no.

Similar with setting up a SMSF - no exemption based on this regulation.

 

There is an interesting document here http://www.huntergreen.com.au/wp-content/uploads/UNLICENSED-ADVICE-by-ACCOUNTANTS.docx

Which states:

Mortgage brokers need to be careful of this one, as do accountants and lawyers.

 

Terry - I am not saying that you can provide personal insurance advice. Refer to Section 2 on page 5 for a summary. I'll have a read through the Hunter Green doc. Cheers Ivan

http://www.cpaaustralia.com.au/~/me...nning/guidance-note-for-advising-on-smsfs.pdf