Dos and don’ts of establishing and running a SMSF
By Michael Hutton, Sydney Morning Herald, a personal wealth management partner with HLB Mann Judd Sydney.
There is no doubt that SMSFs hold a number of advantages over other superannuation options, but they are not for everyone. Having a SMSF may offer more choice, control and flexibility, but it also demands more time, effort and responsibility.
In addition, SMSFs are not regulated by APRA, which means SMSF trustees may not have access to assistance if they become the victim of fraud, for example.
Paying careful attention to the dos and don’ts of managing a SMSF will help decide if it is the best option for you.
Do have a good reason to establish a SMSF. It should not be established on a whim. You should expect to be more engaged with your super when you are running a SMSF, and more involved in what is happening.
This means investing time and resources in managing your investments.
It is important to obtain advice on the obligations of running an SMSF and its appropriateness for your circumstances. This includes implementing a well-thought-through investment strategy, ensuring the fund investments are purchased in the correct name (the trustee’s) and deciding whether or not you will appoint a corporate trustee.
The benefits of a corporate trustee almost always outweigh the costs. It is also important to consider integrating the SMSF with your business, if applicable, in terms of ownership of commercial property and rolling over of the proceeds upon selling the Administration is a large part of running an SMSF, and it is important to keep paperwork up to date. This includes lodging tax returns on time. The Tax Office dislikes late lodgers and this is an early indicator that all is not well with the fund and its management.
Do keep the logistics of running a SMSF reasonably simple. Complication does not necessarily enhance returns and can sometimes result in increased administration costs. For example, it is a good idea to have one bank account, not many, and one holder identification number (HIN) for shares.
A key advantage of SMSFs is that they offer greater flexibility than other structures, and it is important to ensure you make the most of this, such as starting a pension draw down when it suits you. Also, ensure that you make use of the ancillary benefits of an SMSF such as reviewing the insurance options.
There are also a number of traps for the unwary, when it comes to running an SMSF.
Don’t start an SMSF with the expectation the money can be accessed sooner than otherwise allowable. Just because you hold the cheque book doesn’t mean that the funds can be used for a purpose other than retirement.
Equally, don’t have an expectation of receiving a personal benefit from the super fund’s investments. Wine buffs should not be buying wine, nor art lovers artworks. Some collectibles can be bought however the complications involved in holding them as investments can detract from the effectiveness of the fund.
Don’t expect to buy assets to be used personally, such as a holiday house or a unit for children. This is not the purpose of an SMSF.
Finally, don’t be lazy with investments. It is wasted effort if you just leave funds in a cash account. Be sure that you make the most of the fund and make it work for you.
There is a stark difference between a self-managed super fund and what I call a Professionally Managed Super Fund. The concept of the Professionally Managed Super Fund is to act as the chairperson and take advice from the board, being professionals in the relevant field, giving you the best possible chance to reach your retirement goals.