Here’s what you need to know

An SMSF or self-managed superannuation fund is a trust that is established to hold, maintain and grow the superannuation balances of members.

An SMSF provides trustees with absolute and autonomous control over their superannuation balances. This includes their ability to establish and maintain an investment strategy and independently control their SMSF investments – with the ultimate/main goal of saving for their retirement.

• Better Control – as the trustee of an SMSF, you have ultimate control over the investments made with your super balance. When your money is held in a retail or industry fund, you have no/limited control over the investment decisions. 
• More Flexibility – You are able to select/invest in/choose investment options that are not usually permissible via your retail or industry fund. These options include direct property and unlisted unit trusts.
• Tax Savings – You have the flexibility to select investments that can bring you tax-deferred and tax-free income. You can also use franking credits from dividends to reduce the 15%/your tax rate. In addition, if you choose to purchase a property inside your fund using a borrowing, any negative gearing can potentially reduce the amount of tax payable on your contributions.

Cost Savings – In an industry fund or retail fund, you have no control over the fees charged to your super account. However, in a self-managed fund, you can manage the investments and costs as you see fit. Industry data confirms that SMSFs – with assets valued at over $200,000 – have significantly reduced fees as compared with other superannuation funds.

There is no minimum balance required by law set up an SMSF. However, there are industry guidelines. There is often a debate in the industry as to how much super you need before you consider setting up an SMSF. This debate is driven by the annual cost of managing an SMSF. Most Financial Planners will recommend a minimum balance of at least $200,000 prior to considering the establishment of an SMSF.

Since the average super balance for most individuals is below $150,000, setting up an SMSF may be more suitable for couples who are able to combine their super funds.

You can have up to six members in your SMSF.

All members of the fund must be appointed to act as trustees for the fund. The Trustee structure can be set up as either of the following:

1. Individual trustees – there must be a minimum of 2 individual trustees.
2. Corporate trustees – a company can be appointed to act as the trustee of a fund. All members of the fund must be the directors of the company… corporate trustee… or just company.

Yes, an SMSF can be established with one member, but only if a company is appointed to act as Trustee of the fund.

There are benefits of having a Corporate trustee, including:

1. Administrative efficiency– it is easier to establish a fund with a corporate trustee because if you need to add or remove members at any time, all you are required to do is lodge the relevant paperwork with ASIC to record the change.

If your Fund has Individual Trustees, each time you wish to add or remove the Trustee, you will need to arrange an amending deed to effect the change.

When an SMSF is established, all assets owned by the Fund must be held in the name of the current trustee. If a Fund is established with Individual Trustees and the trustees change, then you will need to update all investment account names including bank accounts, shareholding names and property titles. However, with a Corporate Trustee, this is not necessary.

1. Estate Planning– an SMSF can continue on after the death of a member with a corporate trustee without the surviving trustee having to make any major changes to the fund structure.
2. Minimises risk in the event of litigation– individual trustees are jointly and severally liable for any litigation action taken against the fund, as the fund assets are held in the names of the individuals. That means in the event of a law suit, the individual’s personal assets may be exposed.

Under a Corporate Trustee structure, the Directors liability is limited to the assets held in the name of the Company. This effectively minimises the risks of the Directors personal assets being exposed.

d. Lower overall costs – a corporate trustee structure is more expensive to establish at the outset, however, in the long run, the benefits certainly outweigh the costs. In addition to higher establishment costs, ASIC charges an annual renewal fee for all companies. For SMSF trustees, the fee is reduced and currently around $47 per annum.

The cost of setting up an SMSF varies, depending on who is setting up your SMSF. Typically, an accountant or financial planner will attend to the establishment of the Fund. The fees can vary from $1,000 to $5,000 depending on the level of involvement of the person who is establishing the fund.

At Source Accounting Australia, we charge the following fees for establishing/setting up your SMSF documents:

1. Individual Trustee Structure – $1500 + GST.

      b. Corporate Trustee Structure – $1800 + GST.

Yes, there are. Setting up an SMSF is not for everyone. These days, a professional, whether it be a financial planner or an accountant, must meet with the client and review their circumstances – prior to recommending that they set up an SMSF.

A statement of advice (SOA) must be prepared for the client outlining the appropriateness of an SMSF for their circumstances, and recommending whether or not they proceed with setting up an SMSF. This advice must be issued and agreed upon prior to the establishment of the fund.

Only a financial planner or accountant holding the appropriate ASIC licence, or acting as the authorised representative of a company holding an ASIC licence, can legally prepare your SOA.

Once an SOA has been prepared, and it has been determined that an SMSF is appropriate for you, we can place an order for your SMSF establishment documents.

Yes, we can. Although we are based in Brisbane, we service trustees Australia wide.

SMSFs are regulated by the Australian Taxation Office (ATO).

In order to set up an SMSF, you will need to complete an SMSF establishment (order) form and submit it to us for processing. Information that is requested in this form includes:

1. Fund name preference – you will need to select a name for your SMSF. The SMSF name is not governed by ASIC or the ATO. You can select a name of your choice.
2. Trust structure type – you need to indicate whether you require a corporate trustee or individual trustees. If a corporation is to be established to act as trustee, the name of the Corporation is by ASIC. You will need to check the availability of your preferred name by searching ASIC’s online register of organisation names here: https://asic.gov.au.
3. Fund residential address
4. Fund postal address
5. Trustee details including full name, date of birth, tax file number and place of birth.
6. Proof of identity documents

Yes, it does. But we’ve got you covered. During the establishment process, we will automatically register your SMSF with the ATO.

Yes. These unique identification numbers are required to identify your SMSF.

Your ABN is available for review via the Australian Business Register (ABR). Other entities, including rollover funds, auditors and government agencies, will check the ABR status of your fund to ensure it is a complying fund. These checks are made when your rollovers are processed, and your SMSF annual returns are lodged.

Yes, you can borrow money within your SMSF to invest in real property by using a limited recourse borrowing arrangement (LRBA). Borrowing arrangements within SMSFs are becoming increasingly popular among SMSF trustees seeking to invest in real property.

You can buy any property available on the market whether it be residential or commercial. When considering purchasing a property inside an SMSF using a borrowing, you need to ensure that this is permissible by your Fund Trust Deed. In addition, the Fund’s investment strategy must refer to using a borrowing to buy property.

There are strict rules in the Super Law that mean your SMSF will not be permitted to purchase a Residential property owned by you, your relatives or an entity related to you.

There are different rules for Commercial property and properties from which a business is the sole and exclusive use of the premises, which may allow this type of purchase by your SMSF.

A Limited Recourse Borrowing Arrangement (LRBA) or Bare Trust Arrangement is a specific structure that is set up an SMSF to finance an investment.

This structure is called “limited in recourse” because the lending bank’s only recourse, in the event of a default on a loan repayment, is to repossess the investment property that has been used to secure the loan. This means that the bank cannot touch/come after the other SMSF’s other assets, and therefore minimises the risk that those assets will be seized by the bank.

No. you can’t. Each property purchased must have a separate bare trust established. However, you can use the same corporate trustee/s for multiple arrangements.

Your bare trust should be established prior to any contract being signed and executed for a property purchase. The contract must be executed in the name of the bare trustee. This means that the bare trustee company must be incorporated prior to any purchase contract being signed.

The cost of setting up a bare trust is $1,980 including GST.

We can assist you in establishing your bare trust with a written document. Your bare trust will be established within 24 hours of receiving your completed order form.

Your borrowing capacity is usually determined by two factors – income serviceability and cash injection. Most banks lend up to 80% for a residential property purchase, and up to 60% for a commercial property purchase. However, these loan to value ratios (LVR’s) can vary. A mortgage broker can assist you in understanding your lending capabilities.

No. Many banks have exited the SMSF loan market due to strict lending criteria imposed by the Australian Prudential Regulation Authority (APRA) – the regulatory body that oversees banks and other sectors of the Australian financial services industry.

Yes. We recommend that you obtain a pre-assessment so that you have a good understanding of your lending ability prior to going to the cost of setting up your SMSF and bare trust.

No, we don’t. At Source Accounting, we charge an annual package fee for your SMSF compliance. This package includes all the telephone calls and email correspondence you need, whenever you need our input, at no extra cost to you.

There are many (roboadvice) firms in the market place that offer a low fixed annual fee for the preparation of SMSF annual financial statements, tax returns and audits. Their fees are so low because these firms do not actively connect with their clients, or offer any value added services. They are also not readily available to trustees to assist them in the ongoing management of their SMSF, and typically do not answer phone calls and have a delay response time to emails. These low cost options/operators target market trustees that are fee sensitive. Their main objective is to fast track a set of accounts that comply with the super law.

When you deal with Source Accounting Australia, you deal face-to-face with real people.

We are a team of professional accountants dedicated to serving, and assisting you with the day-to-day management of your SMSF. Source Financial specialises in SMSF strategy and adding value for our clients. We are not a set of SMSF accounts.

As our valued client, we will act pro-actively in your best interests at all times. We will make suggestions to you that will help you to better understand the figures behind your SMSF financials. As a result, you will form a better idea of how to build your wealth within your SMSF for your future retirement.

Yes. In most cases, financial advisers are qualified to provide you with services relating to setting up an SMSF and the structure required, for your fund to borrow. You will be required to see a financial planner, and obtain formal advice prior to proceeding with this structure.

At all times, your financial adviser should act in your best interests. They should also consider your personal circumstances when making recommendations. Any recommendations they make must be documented in a Statement of Advice (SOA), handed to you personally, and discussed with you prior to proceeding with any structure set-up.

If a financial adviser contacts or approaches you via by cold calling, in a Seminar scenario, through marketing, or via a mortgage broker, you should exercise caution, and conduct your own checks before proceeding.

ASIC has warned that some unscrupulous advisers team up with other professionals, such as mortgage brokers and property research companies. They may also own or have a vested interest in an accounting firm. These advisers may offer you a complete service, in order to earn big commissions and collect kickbacks from their network. They may also be paid large commissions from property developers for making property sales.

These types of professionals may not be acting in your best interests. All commissions earned by the adviser should be documented in your SOA, and you should be fully aware of these payments before proceeding.

It is important to note that financial advisers cannot and should not, under any circumstances, make a recommendation to a client that they purchase a specific real property.

If you are being offered this type of service, we recommend that you get a second opinion.