Self-Managed Super Funds provide a great alternative to traditional super funds, when you would like more control of the investments.  There is a lot to consider, when exploring Self-Managed Super Funds, including:

a. What actually is a Self-Managed Super Fund?
b. What is the benefit of a Self-Managed Super Fund?
c. How much do I need for a Self-Managed Super Fund?
d. How much does it cost for a Self-Managed Super Fund?
e. What are my obligations with a Self-Managed Super fund?

What Is A Self-Managed Super Fund (SMSF)?
A Self-Managed Super Fund (SMSF) is a super fund that you control and manage.  It is similar to a traditional super fund in that it: requires a trust deed to document the rules of the fund, members are invited to join the fund, and it requires trustees to manage the rules of the fund.

Unlike a traditional Super Fund, however, an SMSF has a greater deal of flexibility when it comes to investment and insurance options.  Since the members must be trustees, they retain the right to make investment choices.  The maximum number of members for an SMSF is four, and the minimum is one.

What Is The Benefit Of A SMSF?
The benefits of a Self-Managed Super Fund includes: control, transparency, better estate planning options, and the illusion of lower costs.  I mention ‘illusion’ because a lot of SMSF members think that a Self-Managed Super Fund would be an effective way to reduce fees and advisor commissions.  The truth is that an SMSF has to submit a tax return each year, and therefore accounting fees simply replace the advisor fees.

The significant increase of SMSF’s over the past couple of years has coincided with the laws allowing SMSF’s to borrow money to invest in Direct Property.  Unfortunately this has opened up a can of worms in that Property Spruikers have used the opportunity to sell more property to unsuspecting investors.  We do not object to SMSF’s borrowing money to invest in property (in fact we help many clients with these strategies) however we do object to the unsupervised and high pressured tactics that some Property Spruikers use.

How Much Do I Need For An SMSF?
The Australian Taxation Office recommends a minimum of $250,000 to start a SMSF.  We agree that this is an ideal amount, however, we do have a number of clients with less than this amount (as long as they plan to make large contributions in the medium term).

How Much Does It Cost For An SMSF?
The set up costs for an SMSF depend on how much compliance work is performed. We suggest that costs range from $5,000 + GST to $10,000 + GST, depending on the complexity and number of members. The actual cost to produce a trust deed is much lower, however some service providers only perform this task, leaving the trustee to source additional services to complete the fund setup.

Typically the ongoing fees for am SMSF will fall into a number of categories including:

1. Accounting Fees
2. Audit Fees
3. Statutory Fees
4. Investment Fees
5. Administration Fees

These fees can range from $3,000 + GST to $10,000 + GST per annum.  Consequently the value of an SMSF should be enough to absorb these fees, without having a significant impact on the performance of the fund.

What Are My Obligations With A SMSF?
Your obligations as a Trustee of an SMSF are extensive. Despite the ability to outsource the majority of duties to a professional team, the buck ultimately stops with the Trustee.

You are obligated to:

1. Ensure the fund remains compliant in regards to the SIS Act (Superannuation Legislation).
2. Ensure the fund adheres to the rules of the Trust Deed.
3. Submit a tax return for the fund each year.
4. Maintain an up-to-date investment strategy.
5. Ensure the investments of the Fund are within the rules of the Investment Strategy.
6. Ensure the fund is capable of meeting its financial obligations.
7. Provide accurate information to the Super Fund members.

At Encompass Financial Services, we specialise in the setup and ongoing administration of SMSF’s.