Starting my own SMSF

[chook]

Last night I went to one of Centrelink's free seminars on starting your own super fund. Unfortunately it was useless, so I have been trying to research how to start my own fund so I can buy a property. I rang the ATO super enquiries line and they said if it has one member (me) who is the trustee (me) then either a) a second trustee who is a relative needs to be appointed or b) a company has to be incorporated with me as the director. As I don't want any of my relatives being involved in my fund, it looks like I will have to incorporate a company. But I don't understand the reason for it. Doesn't that mean I will have extra reporting requirements to ASIC for the company?

 

[geoffw]

Before anything else- a super fund cannot borrow to buy property (except under some very limited circumstances). So for an SMSF to buy property, it needs enough to buy the property outright- and that takes away the really big advantage of property, which is leverage.


Even buying shares, running an SMSF does involve ongoing costs (several thousand just for accounting and audit), so you have to make sure it's worth while for you to do it.

 

[chook]

Thanks for replying. The trouble with the Centrelink seminar last night was that they assumed that people were new to superannuation. But in fact, we were a group of older people who had been contributing to work super for years and had the benefit of employer seminars over those years so we had quite an advanced knowledge of super. But what we wanted now was the nuts and bolts instructions on how to start a super fund and the only answer they had to that was - see an accountant/solicitor/financial planner. Well, we have that all rolled up in the work super plans but what we want now is the information on how to start/run our own fund. People who have retired have got time to research/travel real estate, watch CNBC Asia all day so we have the time to look after our super. But there doesn't seem to be anyone catering to our group. But what has put a bee in my bonnet is that I got a letter from my super fund the other day saying they were introducing a personal planner fee (compulsory) of 2.2% p.a. of the fund balance. I rang to discuss this fee with the planner and have never received a return phone call. There is no way I am paying this fee to someone who lives in another state and whose services I don't use. I am fairly sure that I am not the only person who feels this way.

 

[Glebe]

2.2% of the fund balance is massive. I'd complain big time.

 

[Aceyducey]

Cash grab!

Chook - see that good accountant. They will help you set up a SMSF (self-managed super fund).

Cheers,

Aceyducey

 

[Francesco]

do it my way

Hi Chook

If you are under 65, no 'work' test to set up and contribute to super. If above 65, need to pass 'work' test - see ATO website. Below is about the accummulation phase. I haven't reach the pension stage yet.

There are 2 ways to do your own SMSF: 1) not more than 4 family members in the fund (supervised by ATO), or 2) you and an 'advisor' (supervised by APRA).

1) is the cheapest option - DIY thing. 2) costs more - a professional is involved.

You need a trust deed setting up what you can do and what you will be able to do later on. About $500 - try Symbolic. They will instruct you on trustee duties, reversionary beneficiary, TFN application, stamp duty, investment strategy and notification of APRA (if still required).

Open a specific and separate bank account for your SMSF.

Next, open a wrap account with on-line access. About 1% admin cost calculated on value of portfolio - try BT Wrap. Instruct BT to link to above bank account. The wrap account allows you to invest in ASX shares with on-line cost of about $30 per sell/buy transaction. It also allows you access to hundreds of fund managers' products at wholesale prices, eg BT, Perpetual and Colonial First State.

Deposit money into your bank account for investments. The wrap account can withdraw from it. Note (minute) what cash you are depositing into the bank account for tax accounting later on. You can also transfer shares in specie (no CGT) into the SMSF.

The wrap account gives you on-line statements and quarterly statements. Does all your tax, etc and minimise your accounting. Should not cost you more in accounting with neat statements. My accountant charge me about $1000 a year for audit and tax returns.

Do your internet monitoring or transactions anywhere on your travel and at any time of day. Have fun and freedom!

 

[chook]

Thanks for the excellent advice. I will try Symbolic for the trust deed. I have found a good website to help with the day to day administration of running the fund. It is mysf.com.au - for $660 you get the software, one year's assistance and free membership of the superannuation forum for discussions with other members. I have rung my super fund and asked them to post out the rollover form and have started making enquiries of different banks for account fees/ interest etc. so I am on my way. I am hoping to go to WA in the next few months to have a look at the real estate over there because I think they are behind the rest of Australia in the cycle and there seems to be very cheap properties over there. I am a bit disappointed with the real estate agents though. I have emailed them asking for advice about certain properties they are advertising but have not received any replies. So I will have to wait till I get there in person.

 

[geoffw]

Chook

I'd double check about the requirements of an SMSF- prehaps one of the resident accountants on the forum could advise.

A few years ago it was possible to do your own thing (within guidelenes) and it would be checked by the ATO. But audit requirement are being shifted over to the taxpayers- I've had to pay extra fees to have my SMSF self audited.

If you have enough money in your fund to buy a house outright, I would strongly suggest that you do pay a professional to give you advice.

You may be able to get a generic trust deed to cover your strategy- but if it does not cover all your possible options in the future, you may find yourself restricted.

Please, get some professional advice. In saving a few dollars, you could miss out on thousands.

 

[Aceyducey]

Chook,

Don't email real estate agents. Call them!

I reckon the strategy you are following for your SMSF is a sub-optimal one.

Don't try to do it all yourself & via the internet. Get a good accountant!

Cheers,

Aceyducey

 

[Macca]

Hi Chook,

My wife and I have a SMSF, the tip is shop around !!!!!!!!!!!!!!!!!!

We set it up through our accountant, about 7 years ago, cost about $1500 I think, we were paying $1400 p/a for minutes, returns and audit to a specialist super management/investment co.

By shopping around I found an acct 2 years ago, (who uses the same software as specialist) who does it all for $660 p/a.

 

[Francesco]

WA real estate

Hi Chook

I hope mysf.com.au allows you to invest in the sectors you are interested in. I have a feeling that its software allows you to invest in 'everything' allowable in super. A possible restriction is that it may not allow you to invest in managed funds at wholesale prices, that is if you want to include such investments.

I hope you can pin down a reasonable real estate management fees in WA. My friend who has a residential property investment over there is getting consistent quotes of about 25% p.a.! I know Qld has laws about the rate of management fees. WA seems to allow excessive rate. I hope it is not the case.

Good hunting and let us know how you fare.

 

[alpina]

question in regards to the deed setup - if it needs to be changed (ie, modified to take into account new situations) at a later date whats involved? is it simply a new set of minutes or is there more to it than that?

regards,

julie

 

[chook]

When I was at the Centrelink seminar the other night, the speaker said "Don't try and get your trust deed cheap over the internet because you want a good deed that is flexible and will allow changes at a later date" and someone said "Can't you change your deed at a later date?" and the speaker said "Oh yes you can", and then the subject changed so I didn't get whether he was saying "yes you can but only if the deed allows for it" or saying something else. Sorry I haven't got the answer but I'm not clear on it either.

 

[Francesco]

Prevention is better than cure

Changing anything can be messy. Try renovation and compare it with building anew!

It is best to ask the drafter to make the deed flexible to take account new laws. Make sure the deed allows the super trust fund to be managed in the pension stage. It has to allow for the fund to operate in the accummulation phase and in the pension phase. Make sure that it can allow various pensions like allocated and the newer TAP to be managed under the trust deed.

All the best.

 

[saskatoon]

Chook,
apologies if you have already done the reading, but I thought Austin Donnelly's book "Do-It-Yourself Superannuation" was clear and concise for what is a complicated subject. Borrow or buy the latest edition.
Terry

 

[alpina]

anyone had one done in syd? currently exploring the idea with diysuperfund.com.au

after having been to one of their information night. my main concern is that it seems to do a generic deed and im scared i might be missing out on potential flexibility.

cheers,

julie

 

[redwing]

Chook

Hi Chook,

I'm investigating it also, spoke with the ATO guy at the Perth Money show and he said $1500 was 'way' to much and you could do it yourself for less..i'm speaking to my accountant also on monday though for good measure..

REDWING

 

[geoffw]

ATO getting tougher on SMSF funds

Tax Office cross-matches detail on DIY super returns

The Australian Taxation Office is conducting a trial of a new system of rating Australia's 300,000 self-managed superannuation funds as it gets tougher with the booming do-it-yourself market.

Using information obtained from auditors, tax and regulatory returns, along with historical returns and information, the Tax Office is building up a system that assigns a risk rating to the funds and helps select high-risk funds for audit...

 

[redwing]

Hi Geoff

Geoff Peter Spann, is an advocate of SMSF isn't he.. i recall him talking about starting with as minimal an ammount as $10 000 with the girls who work for him??

REDWING

 

[geoffw]

Peter certainly did advocate sn SMSF- I'd imagine he still does.

In 2000 there were things an SMSF could do which he can't do now. He told us of somebody who invested in art, and who hung the artworks in his house. When the SMSF rules tightened, ATO did not allow personal benefit for anything an SMSF invested in- so the artwork was lent to a major gallery. This person didn't know if he had to get ATO permission to visit that gallery to view the works.

Self audit rules make an SMSF more expesive to run- for a fund with six transactions for the year, accounting fees were around $1500 from memory. So you would have to do very well investing $10K for it to be worth it.

Different sources give different numbers they suggest as a minimum, but it does come down to you being able to get a better return after all expenses than any fund the super may be invested in if it was not an SMSF.