SMSF -what I know

Hi All

I'm trying to set up a SMSF and getting as much information as I can .

I will put down what I know and if you can add or correct me I'm happy to listen to what comes my way.

1/ SMSF is basically a company of sorts ( and from what I can tell there all basically the same, if not what are the differences ?) , you can download the paper work to fill in and post off or lodge it over the net ( they talk about a 20min set up time ) you will need to think of a name for it.

Once your fund is issued with a TFN and ABN, you are able to open a bank account in the name of the fund.

There are 2 types of trustee's to the fund you can have ( I dare say there are a thousand more but I'm sticking to the ones I know, as the heading mentions ).

A corporate trustee ( more expensive )
or have
individual members

A corporate trustee is basically a company that you will need to set up if your a single person to run the SMSF ( as a trust needs 2 signatures to it )

Individual members is up to 4 members who must become trustee's and each sign the trust deed and various other forms.

2/ You now need a trust deed ( which basically says what the fund can and can't do in regards to its investment stragety ) these can also be downloaded off several sites filled in, and sent off .

I believe these are a generic form which covers most things a normal SMSF will do , this is also the form that needs most looking at before its all set in concrete and one to get advice over.

You then need a bank account and cheque book (pick a bank to do this with:) )


What I know about the banks,

westpac - they will lend money to a SMSF 80% LVR interest rate 8.05 ( as of the 9th of feb 2010) ( business rate ) that is the dept that looks after SMSF borrowings.

catch to be aware of ,

they will only lend to a corporate trustee, so be aware of that one fact if you are using westpac,
they will also need to have your trust deed doc looked over by there lawyers ($2200).

St George - they will lend to SMSF, 72% LVR, interest rate is 6.68

with them you will need a custodian trust deed as well, they help with this ( at a cost one would think :mad: ).

there are also many doc's you will need to supply too satisfy everyone and there dog ,eg letter from your employer and all the other usual suspects that need to be produced .

with St George they will take into account 80% of the rent and 80% of super contributions for serviceability .


Comm bank - do not lend

ANZ no idea at this point

NAB - waiting for them to get back to me

Haven't looked into any other bank/credit union

Other thing I know

This is all very new to banks so I have had some very blank expression after we get over 'yes I can help you with that' conversation when I ask to speak with someone more senior

Don't expect to get any answers from them, unless you have pre planned an interview where they will get someone in for you , the manager of the branch won't be able to help you either.

And Don't expect to get many answers from anyone even if its of a general nature, ( does someone know what happened, so everyone and there dog needs a disclaimer , even on here , have people rushed out and done something with general advice they got off a forum ??)

Now I know I haven't got all the information I need so fire away with what I need to know more of .

thanks stuart
 
Hi All

I'm trying to set up a SMSF and getting as much information as I can .

I will put down what I know and if you can add or correct me I'm happy to listen to what comes my way.

1/ SMSF is basically a company of sorts its actually a trust, not a company, very differnet legal definition( and from what I can tell there all basically the same, if not what are the differences ?) , you can download the paper work to fill in and post off or lodge it over the net ( they talk about a 20min set up time ) you will need to think of a name for it.
20mins???? make sure its set up correctly

Once your fund is issued with a TFN and ABN, you are able to open a bank account in the name of the fund.

There are 2 types of trustee's to the fund you can have ( I dare say there are a thousand more but I'm sticking to the ones I know, as the heading mentions ). Yep 2 types

A corporate trustee ( more expensive )
or have
individual members

A corporate trustee is basically a company that you will need to set up if your a single person to run the SMSF ( as a trust needs 2 signatures to it ) doesnt need two signatures, two trustees are required if non individual

Individual members is up to 4 members who must become trustee's and each sign the trust deed and various other forms.

2/ You now need a trust deed ( which basically says what the fund can and can't do in regards to its investment stragety ) these can also be downloaded off several sites filled in, and sent off .
Trust deed comes before this step, investment strategy and resolution of members after trust is set up
I believe these are a generic form which covers most things a normal SMSF will do , this is also the form that needs most looking at before its all set in concrete and one to get advice over.

You then need a bank account and cheque book (pick a bank to do this with:) )


What I know about the banks,

westpac - they will lend money to a SMSF 80% LVR interest rate 8.05 ( as of the 9th of feb 2010) ( business rate ) that is the dept that looks after SMSF borrowings.

catch to be aware of ,

they will only lend to a corporate trustee, so be aware of that one fact if you are using westpac,
they will also need to have your trust deed doc looked over by there lawyers ($2200).

St George - they will lend to SMSF, 72% LVR, interest rate is 6.68

with them you will need a custodian trust deed as well, they help with this ( at a cost one would think :mad: ).

there are also many doc's you will need to supply too satisfy everyone and there dog ,eg letter from your employer and all the other usual suspects that need to be produced .

with St George they will take into account 80% of the rent and 80% of super contributions for serviceability .


Comm bank - do not lend they do so

ANZ no idea at this point

NAB - waiting for them to get back to me yes they do

Haven't looked into any other bank/credit union

Other thing I know

This is all very new to banks so I have had some very blank expression after we get over 'yes I can help you with that' conversation when I ask to speak with someone more senior

Don't expect to get any answers from them, unless you have pre planned an interview where they will get someone in for you , the manager of the branch won't be able to help you either.

And Don't expect to get many answers from anyone even if its of a general nature, ( does someone know what happened, so everyone and there dog needs a disclaimer , even on here , have people rushed out and done something with general advice they got off a forum ??)

Now I know I haven't got all the information I need so fire away with what I need to know more of .

thanks stuart


From reading your post i think you should consider a things.

One - Get an accountant to set it up for you, if they do it wrong then you are covered. If you do it wrong who will you sue?? yourself? plus you will need the fund audited every year.

Two - How much do you have in Super, I dont want you to post it but have a think about it and if you can really maximise what super is for.

Thirdly - Are youi doing this just to get better serviceability and more properties under your belt?
 
Darcy, why do you want to use a super fund? It's very difficult to get money out of a super fund before you're 55. And gearing is more limited compared to buying in your own name, for example.

Have you actually thought through how you're going to use the super fund and how it helps you achieve your goals?
Alex
 
...You now need a trust deed ( which basically says what the fund can and can't do in regards to its investment stragety ) these can also be downloaded off several sites filled in, and sent off .

I believe these are a generic form which covers most things a normal SMSF will do , this is also the form that needs most looking at before its all set in concrete and one to get advice over.

I'd suggest you spend just as much time investigating the trust deed.
It's a very costly excersise if you get it wrong in the beginning. Using one you just downloaded of the internet will probably casue you pleanty of problems in the future.
 
Darcy, why do you want to use a super fund? It's very difficult to get money out of a super fund before you're 55. And gearing is more limited compared to buying in your own name, for example.

Have you actually thought through how you're going to use the super fund and how it helps you achieve your goals?
Alex

Alex, why wouldn't you use a super fund to buy a property. If you're a PAYG, so you have to make super contributions (or your employer does if you you want to look at it that way), and you have a lump of money in super going backwards or sideways because the industry fund is in shares or equivalent?

Wouldn't it be a good option to leverage that lump sum into property?
 
Alex, why wouldn't you use a super fund to buy a property. If you're a PAYG, so you have to make super contributions (or your employer does if you you want to look at it that way), and you have a lump of money in super going backwards or sideways because the industry fund is in shares or equivalent?

Wouldn't it be a good option to leverage that lump sum into property?

Exactly, if there's already money in there and money going in regularly from
your employer... isn't a geared investment going to outperform the ungeared one?

btw I still think there's some teething issues with SG so there's greater risk entering into "property warrants" at this early stage.
 
Alex, why wouldn't you use a super fund to buy a property. If you're a PAYG, so you have to make super contributions (or your employer does if you you want to look at it that way), and you have a lump of money in super going backwards or sideways because the industry fund is in shares or equivalent?

Wouldn't it be a good option to leverage that lump sum into property?

The property will likely be negatively geared to start with. My understanding is that you'll have to put money into the super fund to make it tax neutral because your super fund can’t make a loss. If the amount you have to contribute is equal or less than your ‘normal’ employer’s contribution, there’s no extra money needed. However, the question is do you want to put MORE in there than otherwise would be the case?

Depreciation is an interesting problem in super funds. Obviously it’s a tax loss, but not a cash loss. In your personal name, it creates cashflow by reducing your personal tax. In a super fund, it forces you to contribute more of your (pre-tax, granted) income into the super fund and locks it away.

So if the –ve tax loss from the property is 5k in the super fund and your salary is 60k, then your employer super contribution covers the property loss. But say the loss is 10k. Is it in your best financial interest to put in the extra 4k (even though you get a tax deduction)?

The money is locked away until you’re at least 55. If you’re young, will that extra 4k money might be better invested outside of super (though remembering you pay more taxes personally)? If you start investing in property outside super in your 20s, what will your portfolio look like at 55 and will you need the super assets at all? If that’s the case, does it make sense to have to ‘top up’ the super fund with money you could otherwise use to buy assets outside of super which you can access before 55?

The answers will be different for each person. For me it doesn’t make any sense to put any money into super because I’m too young for it and think it makes sense to invest outside of super. For others, it’ll be different. It might be a good option, it might not.
Alex
 
Hi All

I'm trying to set up a SMSF and getting as much information as I can .

I will put down what I know and if you can add or correct me I'm happy to listen to what comes my way.

1/ SMSF is basically a company of sorts ( and from what I can tell there all basically the same, if not what are the differences ?) , you can download the paper work to fill in and post off or lodge it over the net ( they talk about a 20min set up time ) you will need to think of a name for it.

Once your fund is issued with a TFN and ABN, you are able to open a bank account in the name of the fund.

There are 2 types of trustee's to the fund you can have ( I dare say there are a thousand more but I'm sticking to the ones I know, as the heading mentions ).

A corporate trustee ( more expensive )
or have
individual members

A corporate trustee is basically a company that you will need to set up if your a single person to run the SMSF ( as a trust needs 2 signatures to it )

Individual members is up to 4 members who must become trustee's and each sign the trust deed and various other forms.

2/ You now need a trust deed ( which basically says what the fund can and can't do in regards to its investment stragety ) these can also be downloaded off several sites filled in, and sent off .

I believe these are a generic form which covers most things a normal SMSF will do , this is also the form that needs most looking at before its all set in concrete and one to get advice over.

You then need a bank account and cheque book (pick a bank to do this with:) )

An SMSF is a type of trust. It holds money for the benefit of the members, rather than distributing the profits like a Discretionary Trust.

I personally wouldn't use one of the 'fill in the forms' type of SMSF's. The changes recently have meant that the trust deed needs to properly worded and updated BEFOPRE you will be able to use instalment warrants to purchase property. If you really want to do it, go and see an accountant or lawyer who specialises in SMSF's. It's not worth the risk of getting it wrong, just to save a few bucks.

Will the generic trust deed allow the super fund to invest in instalment warrants? Not all trust deeds are equal.

You will need an investment strategy, and the fund should issue a PDS to the members.

You will need to keep excellent records, of what goes into the bank account, where you are investing the money, and make sure it fits with your investment strategy.

You will need financial statements, a tax return and have the fund audited every year. This can cost anywhere from $1500 upwards.

How much do you currently have in super? If you have less than $150,000 it's probably not worth doing.

The best advice I can give is to go and see an expert.
 
The property will likely be negatively geared to start with. My understanding is that you'll have to put money into the super fund to make it tax neutral because your super fund can’t make a loss. If the amount you have to contribute is equal or less than your ‘normal’ employer’s contribution, there’s no extra money needed. However, the question is do you want to put MORE in there than otherwise would be the case?

Depreciation is an interesting problem in super funds. Obviously it’s a tax loss, but not a cash loss. In your personal name, it creates cashflow by reducing your personal tax. In a super fund, it forces you to contribute more of your (pre-tax, granted) income into the super fund and locks it away.

So if the –ve tax loss from the property is 5k in the super fund and your salary is 60k, then your employer super contribution covers the property loss. But say the loss is 10k. Is it in your best financial interest to put in the extra 4k (even though you get a tax deduction)?

The money is locked away until you’re at least 55. If you’re young, will that extra 4k money might be better invested outside of super (though remembering you pay more taxes personally)? If you start investing in property outside super in your 20s, what will your portfolio look like at 55 and will you need the super assets at all? If that’s the case, does it make sense to have to ‘top up’ the super fund with money you could otherwise use to buy assets outside of super which you can access before 55?

The answers will be different for each person. For me it doesn’t make any sense to put any money into super because I’m too young for it and think it makes sense to invest outside of super. For others, it’ll be different. It might be a good option, it might not.
Alex

Well put. Each case on its merits.

I know tax planning is not the only issue, but often the instalment warrant issue does not provide the best negatively geared results as its only a 15% tax environment.
 
I'd suggest you spend just as much time investigating the trust deed.
It's a very costly excersise if you get it wrong in the beginning. Using one you just downloaded of the internet will probably casue you pleanty of problems in the future.
I'd suggest that there are only two important points about a trust deed. Firstly the price (should be less than $200) and secondly that there is an unrestricted power for the trustees to vary the terms of the deed. Read through the deed and look for the section on varying the deed - usually the trustees can vary any/all of the deed by resolution but there are deeds around where the firm that markets the deed restricts the power to vary the deed to themselves. Using a deed like that would tie your fund to that firm forever - potentially a huge mistake.
 
thanks

Hi brucea

Now that is the kind of info I was after ,I found out yesterday that a trust deed can be changed without much expense , but its a pain, especially when I can get the kind of info that you have given me.
Thank you.


stuart
 
Hi brucea

Now that is the kind of info I was after ,I found out yesterday that a trust deed can be changed without much expense , but its a pain, especially when I can get the kind of info that you have given me.
Thank you.


stuart

$200 trust deeds, $150 instalment warrants, professional advice at $20 per hour good luck to you if you choose the cheapest way.
 
Hi brucea

Now that is the kind of info I was after ,I found out yesterday that a trust deed can be changed without much expense , but its a pain, especially when I can get the kind of info that you have given me.
Thank you.


stuart

Be careful. The power to change a deed is another special area where you have to tread carefully. It may be easy to change but what are the consequences!?!

Get advice that is specific to you and what you need.
 
Thank you for your good wishes

stuart
Yeah all the best with your jump to an SMSF. It really can be a lot of fun. Just one other tip about trust deeds. I'd look for a permissive trust deed over a restrictive one. Instead of repeating the SIS Act and Regs almost in full in the deed a much more flexible deed is one which basically has clauses that allow (1) contributions to be made (2) balances managed (3) funds invested and (4) payments made, in any way which complies with the SIS Act. If you find a permissive trust deed at a good price with full trustee powers to change the deed I'd say that's a great start. But as I said earlier as long as the trustee has the power to vary the deed without any company involved at least you will legally be able to fix any shortcomings in the deed that turn up in the many years ahead.
 
Hi darcy,

I have the most fantastic Solicitor that specialises in Property law and SMSF. If you need one PM me and I'll give you his details.

Regards JO

(I DONOT receive a commission or any incentive for referral)
 
The money is locked away until you’re at least 55. If you’re young, will that extra 4k money might be better invested outside of super (though remembering you pay more taxes personally)? If you start investing in property outside super in your 20s, what will your portfolio look like at 55 and will you need the super assets at all? If that’s the case, does it make sense to have to ‘top up’ the super fund with money you could otherwise use to buy assets outside of super which you can access before 55?

The answers will be different for each person. For me it doesn’t make any sense to put any money into super because I’m too young for it and think it makes sense to invest outside of super. For others, it’ll be different. It might be a good option, it might not.
Alex

Good advice.

This thread is great as I am doing the same due diligence with the key aim being enabling high levels of gearing within super in an asset class I am comfortable with.

I see this as completely separate to our investments outside of super except to the degree that we are over exposed to a particular asset class. (There will be a very strong focus to non-property for the rest of the fund)

In our case, we have a critical mass in super and 30 years to retirement so plenty of time. I also think these benefits are particularly generous at the moment and whilst they can be reversed - I'm hoping they are grandfathered.

I am also thinking through the type of asset to invest in - 30 years is a long time... what is the scenario if we should exit early and cop cgt. or if major renovations are required to maximise return... lots of questions!!!

(We are lucky enough to max out our super contributions whilst maintaining our comfortable level of gearing outside of super - so the inside/outside super question has already been answered - just a question of what to do inside super!)
 
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I am also thinking through the type of asset to invest in - 30 years is a long time... what is the scenario if we should exit early and cop cgt. or if major renovations are required to maximise return... lots of questions!!!

If you have to sell before reaching pension mode CGT rate is 10%. On renovations you would need to have sufficient cash in the fund as SMSF lenders currently will not allow funds for renovation/construction.

However if you have equity outside super and sufficient additional borrowing capacity you could look to use this as a way of onlending $$$ to your fund as a member loan. These monies could then be used to renovate.
 
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