Another SMFS Thread

[zimby]

Howdy

Sorry another SMFS thread.
Was speaking with the accountant and they advised that you don't need 150k plus for SMFS.
Similar to the SMFS mini thread, people are doing it with 60k balance.
Now I don't think this is for me yet as I've crunched the numbers and It would be very reliant on capital gains to "grow the fund" but eventually become positive etc.
Diversification is also a concern.
There are some good advantages to SMFS, so I'd like to plan to increase my super faster to get to a point where I can comfortably invest in property + shares in the Fund.
This Brings me to my question.
Salary sacrifice, is this a good thing to do to plan for a SMFS.
Not only will it help with the tax bracket I'm in, but force savings before it hits my account.
If I throw 20k per year into super( ex employee contributions) this should set us up with about 100k+ next year to purchase a positively geared property with potential capital growth(hopefully)
It also saves me around 4.5-5k in Tax.
I like the Idea of Managing my own Funds, i'm activly involved in planning for my future, I don't see why I should leave super up to some-one else( lol as long as I don't screw it up )

Cheers

 

[Mr. Fabulous]

What's an SMFS?

 

[sanj]

I agree with your accountant but it must be noted that smsfs are not for everyone. If you're confident you understand the responsibilities and can outperform the industry fund or whatever you're in atm I'd recommend it. I've got one with 4 of us in it and I wouldn't have it any other way, the flexibility is excellent

 

[Terry_w]

The benefits of Salary sac will depend on your age, income and goals etc.

DOn't forget that employer ccontributions (the 9.25%) go towards the cap.

 

[zimby]

Lol thanks Fab, should read SMSF, my dislexia

 

[pinkboy]

The benefits of Salary sac will depend on your age, income and goals etc.

DOn't forget that employer ccontributions (the 9.25%) go towards the cap.

9.5%


pinkboy

 

[Terry_w]

9.5%


pinkboy

Your right PB https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=23

 

[pinkboy]

Your right PB https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=23

You're*



pinkboy

 

[Mr. Fabulous]

Lol thanks Fab, should read SMSF, my dislexia

Shouldn't that be 'lysdexia'?

Sceptical Mr. Fabulous is sceptical.

 

[Redwood]

Howdy

Sorry another SMFS thread.
Was speaking with the accountant and they advised that you don't need 150k plus for SMFS.
Similar to the SMFS mini thread, people are doing it with 60k balance.
Now I don't think this is for me yet as I've crunched the numbers and It would be very reliant on capital gains to "grow the fund" but eventually become positive etc.
Diversification is also a concern.
There are some good advantages to SMFS, so I'd like to plan to increase my super faster to get to a point where I can comfortably invest in property + shares in the Fund.
This Brings me to my question.
Salary sacrifice, is this a good thing to do to plan for a SMFS.
Not only will it help with the tax bracket I'm in, but force savings before it hits my account.
If I throw 20k per year into super( ex employee contributions) this should set us up with about 100k+ next year to purchase a positively geared property with potential capital growth(hopefully)
It also saves me around 4.5-5k in Tax.
I like the Idea of Managing my own Funds, i'm activly involved in planning for my future, I don't see why I should leave super up to some-one else( lol as long as I don't screw it up )

Cheers

Hi there,

There is no minimum balance to set up an SMSF, it is not mandated, it about choice and flexibility, so it will depend on your investment strategy that you choose. Yes, mini SMSF are targeted by one promoter, but I like to look at it from the members point of view. IF you are purchasing property, you will generally need $100k to purchase a $350k property (borrowing at 80% LVR) and allowing for a sufficient cash buffer. That can be done. You can increase the balance by adding/ combining another member.

The traditional minimum balance myth is out the window due to the fact that accountants fees are now less, online super administrators do your admin for less than a $1000 and we are just over a $1000.

An excellent contributions strategy through salary sacrifice and concessional contributions is paramount to bumping your super balance and minimising tax.

Re managing your own funds, yep - I dislike industry funds, I was on the phone with Aussie Super for one hour Friday, Superparterns have messed up yet another rollover, delaying the process by two months while they continue to charge fees. Thats why SMSFs have over million members....

Hope that helps

Cheers Ivan

 

[zimby]

Thanks Ivan, Does indeed Help.
100k for 350 property was generally the figure I was working off

 

[Roomer]

G'day Zimby,

Your post resonated with me because at your age that was something I was trying to achieve but there weren't the SMSF readily available as they are today. I did however reach my goal to retire early, but not without a few mistakes along the way.so for what it's worth here's my thoughts.

I think the salary sacrifice is a brilliant way to go as it employs the " pay yourself first" philosophy in that what is taken out of your pay straight away goes into your super and you just except that the fact that your "new" pay is what you learn to live on.

Have you thought about buying a property in your own name first and getting negative gearing benefits such that down the track with an increase in the equity of that property you could buy another property but in the name of a unit trust. The super fund in the meantime can be buying some shares that with proper management will grow in value too.

So later on, you cash in some of the shares and have your super fund kick in the proceeds into a unit trust . With the increase in equity of your property ( extract cash via a LOC ) and diligent saving , you could then have (say)your family trust employ this money and put it into to this same unit trust. ( bearing in mind the property in question can't have a mortgage but there is nothing stopping you personally borrowing and claiming the interest; of course it's verboten for the super fund)

With these combined funds the unit trust can purchase a property and over time the family trust can sell down its unit holding to the super fund, such that the property can be 100% owned by the super fund, which is where you want it to be. There will likely be CGT on the transfer of these units, but they can be controlled into manageable sizes and negated if you ( family trust) have some shares that didn't do as you had liked such that you can offset the losses with the gains.

Now you need a good accountants help for this (but ask around as there are some here who aren't as excrement hot as they tout themselves to be) and there will be costs involved but in my opinion it's at least worth you looking into.

Anyway, best of luck with your endeavours

 

[zimby]

Thanks Roomer.
This is indeed an interesting strategy, one I hadn't considered.
We have a few properties so are on our way

 

[greedy2000]

don't bother with a SMSF.

the majority of these funds are poorly invested and run. They are a good income stream for your accountant, but that's about it. Fees aren't the only consideration when it comes to your super.

You are far better off making large contributions to a low cost industry fund, than gearing up a property in your fund.

If you are young enough the $20K pa contribution to super via SS + your employer SGC will result in a very large super balance by the time you reach 60. (without all the gearing risk)

If you want to buy IPs just do it in your own name.

 

[Paul@PFI]

The benefits of Salary sac will depend on your age, income and goals etc.

DOn't forget that employer ccontributions (the 9.25%) go towards the cap.

Terry just explained one of the benefits of seeking qualified advice. The minimum super in this present tax year is 9.50% not 9.25%. All it takes is a pay rise, a bonus even and the well intention sal sac strategy becomes an excess contribution problem.

 

[CosmicTrevor]

Zimby, I have a SMSF and I like the control it gives me over my superannuation. One response above suggests not doing it because most funds are poorly run. I think that is a bit of an unfair generalisation, but be aware that despite what spruikers say, an SMSF is not set and forget and it is most certainly not for those that are unwilling to invest their own time in running their fund. Your accountant, auditor, lawyer and financial advisor can all help, but ultimately the ATO (who regulate SMSFs) will hold the Trustee to account (ie you).

A small example will illustrate this, my SMSF comprises a SMSF trustee company and a custodian company to hold purchased assets on bare trust. This is pretty normal. My SMSF deed, company constitutions and associated paper work are hundreds of pages. The ATO expect me to operate my fund in accordance with this documentation and the various legislation. Bottom line - if you are not prepared to have an intimate knowledge of documentation I would stop right now and stay with industry superannuation!

Some other considerations, and you should seek specific advice about this;
1) borrowing can only be for a single acquirable asset, I think this means you can't use CG to fund another property acquisition.
2) borrowing by SMSFs may be prohibited if the government follow the FSI recommendation.
3) while borrowing is permitted at present, be aware that lenders treat SMSFs differently and the costs are usually substantially higher.
4) related parties can't lease or even use the property (unless it is commercial), this will result in a breach of the SIS act as far as I am aware.
5) you can't borrow to improve an asset, only to maintain it.
6) given the tax rate is 15% on earnings/contributions the NG benefits aren't as great as they could be if you buy in your own name (an accountant should confirm this for you based on your personal circumstances.

For me an SMSF makes sense, I went into it knowing the above (at least as a layman) and it fits my retirement strategy.

As far as contributing extra, I'm a fan because of the concessional tax treatment, but once your money is in super (industry or SMSF) you just can't take it out again. So while maximising contributions makes sense for me, this is because I am closer to retirement than not and I ensure that I am not locking away a disproportionate amount.

I personally believe that the right reason for setting up an SMSF is control. I don't think that doing it to save on tax or as a vehicle for property investing are the right reasons for doing it.

Just my 2c worth.

 

[Mr. Fabulous]

Terry just explained one of the benefits of seeking qualified advice. The minimum super in this present tax year is 9.50% not 9.25%. All it takes is a pay rise, a bonus even and the well intention sal sac strategy becomes an excess contribution problem.

Only if it's not dealt with!

As you said, a good adviser (accountant or financial planner) will set you on the right track. Just make sure you get advice from someone who knows what the current SG rate is. It's very poor form on the part of an adviser to not know something that basic.

 

[Mr. Fabulous]

don't bother with a SMSF.

the majority of these funds are poorly invested and run. They are a good income stream for your accountant, but that's about it. Fees aren't the only consideration when it comes to your super.

You are far better off making large contributions to a low cost industry fund, than gearing up a property in your fund.

If you are young enough the $20K pa contribution to super via SS + your employer SGC will result in a very large super balance by the time you reach 60. (without all the gearing risk)

If you want to buy IPs just do it in your own name.

zimby, you would do well to ignore this post entirely. Not that it's necessarily bad advice, just that the person who posted this knows exactly zero about your situation, your goals and your long term plans.

 

[Paul@PFI]

I always explain to clients a SMSF isn't a structure. Its a vehicle to enable personalised strategy that cannot be achieved using other forms of super.

If the person lacks the capital to make it viable or the talent, time and drive to make strategies work then a SMSF is not right. That's where the advisers should be considering all of these matters and giving ADVICE to assist a client to make an informed choice.

Many people have funds in Retail funds and pay fees far far higher than a SMSF and take on incorrect risks. They think they are safer.

IMO anyone with $300K+ in any retail or industry fund that is invested in one of the "pick a box" investment options is probably ignorant of the issues that may affect them. The older they are the worse this becomes too. A good example is the very strategy process the choose. Lets say they use the growth option. Probably 50% or more is market risk exposed. The strategy requires a min and max exposure to various asset classes that are all exposed to market risk. When the market crashes ALL of them are affected. What does the strategy mandate ?? That a min and max MUST be held. So they ride the loss down. The investment strategy does NOT permit the trustee investment managers to sell the lot and run to cash and buy back in and ride the market up. In fact the mandated option may only allow 10%-20% cash preventing a sound strategy.

That's a simple strategy any SMSF can adopt.

Industry funds ads that compare the pair are a lie and ignore this key problem. It why so many moan that their fund lost 25% during the GFC etc.

 

[greedy2000]

IMO anyone with $300K+ in any retail or industry fund that is invested in one of the "pick a box" investment options is probably ignorant of the issues that may affect them. The older they are the worse this becomes too. A good example is the very strategy process the choose. Lets say they use the growth option. Probably 50% or more is market risk exposed. The strategy requires a min and max exposure to various asset classes that are all exposed to market risk. When the market crashes ALL of them are affected. What does the strategy mandate ?? That a min and max MUST be held. So they ride the loss down. The investment strategy does NOT permit the trustee investment managers to sell the lot and run to cash and buy back in and ride the market up. In fact the mandated option may only allow 10%-20% cash preventing a sound strategy.

That's a simple strategy any SMSF can adopt.

Just to play the devils advocate here, but don't 99% of managed funds operate in a similar fashion, they invest with a mandate and keep their asset allocation within certain bands? they don't make decisions to go to cash they leave that up to the investor.

In addition most industry/retail funds offer a selection of diversified and single sector options. So it is entirely possible and very simple to switch from a growth asset to cash and back again if you wished to "time" the market.

So I'm not sure what you stated above is really a SMSF advantage.

The only advantage a SMSF has is that it can invest in real property and other alternative assets such as collectibles, art work etc. And that it can borrow in limit circumstances.