NEWS & BLOGS

By Patrick Hoey – FCPA – director at Account(able) Accountants

People looking to set up a Self-Managed Super Fund (SMSF) to help them make more money for their retirement, need to consider both the ‘pros’ and ‘cons’ of having a SMSF.  I have quickly noted below some brief points of having your own SMSF for you to consider:

PROS:

1. Feel like you have more control of your Super (but is time consuming – see ‘con’ below’).
2. Can make decisions with investments more quickly.
3. Can be motivated to put more money into super, as you control the investing of it. So this helps save some tax at time of contributing, and helps increase your super balance for retirement.
4. Enables you to invest in a 15% tax environment (and 0% when you retire).
5. Can sell investments (ie property) in retirement, and not pay Capital Gain Tax.
6. Can buy rental property (and borrow about 66% to help fund part of the purchase).
7. Enables you to have direct investments in shares, units trusts, managed funds, etc (but there are strict rules of not investing in anything that is personally related to you).
8. Can save on fees you currently pay (when your super balance is over about $300k), as a general rule of thumb is you are paying about 1% fees in your current super fund.
9. Part of set-up will require a review your insurance covers, which is good to see what levels you need.
10. Allows you to transfer commercial property you currently own into your SMSF (but not residential property)

CONS:

1. You need to put some time in with it and have some financial skills – ie collecting information, managing super money, making decisions, correspondence with your accountant and financial planner, etc (compared to just getting an annual statement from your current super fund).
2. You are responsible to adhering to the SMSF rules and regulations (which can be strict).
3. May need to change your insurance covers (but could keep some funds in your current super fund, and keep current insurance cover).
4. Can’t remove the super funds until retirement.
5. Has one-off significant set up costs (about $3-6k, and more if plan to get a loan to buy a property).
6. When having low super balances, can be more costly than having your normal super fund (but need to take into consideration investment returns as well, and not just the fees).
7. Can be confusing to what you are allowed and not allowed to do with the SMSF funds and investments (which it is important that no SMSF funds get intermingled with personal funds, or that you are getting a personal benefit).

Running your SMSF will require you to engage with an accountant to complete annual compliance tasks of financial statements, tax returns and an audit (and have regular discussions of what is allowed and not allowed to do with the SMSF funds).  It is recommended you have a Financial Planner to get advice on your investments in your super fund, as we accountants can’t give investment advice.

For more information or a free discussion, call Pat at Account(able)