Unlike Industry and retail super funds, a self-managed super fund (SMSF) is a private, retirement fund that you own and control and manage. SMSF members and trustees are responsible for the SMSF Investing in Australia, management decisions of the fund for meeting all responsibilities to the ATO, who are the regulator of SMSFs.
Creating an SMSF Investing in Australia:
Setting up an SMSF can be tedious and time-consuming as there are many steps to complete to get a fund active with the right structures and documents in place.
At My SMSF, we pride ourselves on providing a service that simplifies, at times, the drawn-out process of SMSF setups.
Some of the tasks involved with Setting up an SMSF are:
- Incorporation of a Company Trustee
- Apply for the funds ABN and TFN
- Setting up an SMSF Trust Deed for the Fund and its members
- Registering an Electronic Service Address
- Attending to the fund’s compliance documents
- Investment strategy
- ATO Declaration
- Minutes of meeting
- Binding Nominations
- Setting up a fund bank account
- completing the funds Super Rollover forms
- Assist members with a choice of fund forms – employer contributions
It usually takes between 3 weeks to 8 weeks to get an SMSF investing in Australia set up and seeded with funds. So it’s not simple, but we make this process easier for clients who engage My SMSF client.
We can assist in establishing the SMSF in the most appropriate structure for the member’s requirements, be it with a corporate trustee or individual trustees, and adding structuring for borrowing and developing property.
No matter what your SMSF investment goals are, be it property, shares, ETFs, Bitcoin and other cryptocurrencies, Gold or Silver Bullion or Pink Diamonds, at My SMSF, we can support your SMSF administration needs, We specialize in assisting members of SMSFs to ensure, that the SMSF setup, strategy, and continuing administration is compliant and easy to manage.
SMSF – Sole Purpose Test:
To be eligible for the tax benefits offered to SMSFs, your SMSF must meet the sole purpose test as set out in the SIS Act or super laws. This means that your fund must be managed only for the purpose of delivering retirement benefits to your members, or their dependents in the event that a member passes away before reaching retirement age.
The sole aim of an SMSF is to invest in assets that grow in value and eventually allow members to draw an income when they retire.
It is important that the fund’s activities, assets are not used to gain a present-day benefit by the members or any related party of the members of the super fund. This type of assistance is unlawful, as it is not in the spirit and intent of the super laws and it may result in risking the fund’s assets or related party activities, may place risks on the SMSF assets.
A good example of an asset that may provide a present-day benefit and still be considered a suitable asset in an SMSF is a painting or coin collection or a jewelry collection.
If the member display’s a painting in their house, the display’s a coin collection for use and inspection by family and friends or a member wears a necklace out to a dinner party, are all examples of unacceptable use of SMSF assets to personally benefit the members thereby contravening the super laws.
Documenting your SMSF Investment Strategy:
Establishing your fund’s investment strategy is a key step in demonstrating the investment goals of the fund and its members.
This is critical compliance and operational document that members must refer to and both accountants, auditors, and regulators may refer to determine compliance and central management and control of the SMSF.
An SMSF investment strategy outlines your fund’s investment goals and how you intend to meet them. It takes into account all of the fund members’ specific circumstances, such as their age and risk tolerances and their goals and preferred asset classes for investing.
My SMSF provides a free investment strategy document that covers all your requirements in a simple PDF editable document with drop-down option boxes to simplify editing and compiling your SMSF investing in Australia strategy.
The ATO recommends that an investment strategy is reviewed at least each year to account for market changes and member preferences.
Investment Diversity in an SMSF:
In recent years the ATO; the SMSF Regulator, has been concerned with some SMSF members concentrating their assets in a single asset which may pose a risk to their funds, members, and to the retirement system.
Diversifying your portfolio can help you manage risk and keep your income steady as you get closer to retirement. The following are some assets My SMSF members invest in and consider when seeking financial advice:
- Fixed income funds and Term Deposits
- Commercial real estate – may provide a greater yield and more regular cash flow than residential real estate; rents are frequently linked to inflation, which may help to maintain real income levels.
- Residential Property Investment
- Cryptocurrency and Bitcoin
- Pink Diamonds
- Gold, Silver, and other metals
- Private company investments
- Overseas property
All SMSFs must ensure that their funds hold a ten percent (10%) diversity into another asset other than, property, bitcoin, gold, or shares, to name a few concentrated investments held in SMSFs. It does take knowledge and experience to execute on investments, this involves understanding the risks, costs, and management of these assets. Where your fund is concentrated in one asset you should seek advice to diversify your investments.
Three things to monitor when investing in an SMSF:
Assets for capital growth and income:
Some key assets like shares and property provider great capital growth and income returns for SMSF members. Historical performance; which is never a certainty, indicates that property and shares have performed consistently for SMSF members and with the added benefits of franking credits and all the tax benefits enjoyed by SMSF members, these assets are core holdings for many SMSF investors.
Assets that produce income and are lower Risk:
Income funds and mortgage funds are common SMSF investments for pre-retirees as are annuities, which provide steady income and some certainty of capital return. My SMSF members have been prudent to include a good mix of assets, as we have witnessed now over 10 years of administering SMSFs
Risk management and capital protection:
A critical component of all SMSFs is holding sufficient cover to manage debts and the life expectancy of its members and their income earning potential to the fund. A good risk strategy forms the cornerstone of great SMSF investing
SMSF Responsibilities and Risks:
An SMSF’s investments and operational decisions are the responsibility of all members.
SMSF Trustee/ Member responsibilities:
- You are personally liable for any investments the fund makes, even if you enlist the support of a financial adviser or a service provider.
- Your investments may not perform as you expected.
- A change to a members employment might require changes to the fund’s investments, liquidity needs, and risk measures
- If a member’s relationship breaks down, or if a member dies or gets unwell, it could have a negative impact on your SMSF.
- SMSF is not eligible for any special compensation, due to losses, theft, or fraud via the Australian Financial Complaints Authority (AFCA).
Moving to an SMSF may mean losing valuable cover held in a Retail or Industry fund, which due to changing health circumstances is not attainable in an SMSF.
The most common reason people do not set up an SMSF is due to fear of high costs and complexities. With administration providers like My SMSF, we make SMSF investing in Australia setup and ongoing compliance easy and stress-free.
You take care of your Investments or seek advice on these options. Ensure all debts are covered by insurance in the SMSF and that the fund diversifies its assets to improve returns and mitigate risks for the fund’s members.
Our helpful general information guides, blog articles, Ebooks and videos, will assist many members to steer clear of compliance burdens when navigating the murky waters of SMSF management.