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Do the research on self-managed super funds

SMSFs or self-managed super funds can be complicated but beneficial, depending on your circumstances. One of the first places you should look when deciding whether an SMSF will be suitable to your needs is the Australian Tax Office website (www.ato.gov.au). The ATO regulates SMSFs in Australia and there are a number of important rules and regulations controlling your operation.

If you don’t keep to the rules, it could mean seeing the tax rate on your superannuation rising from 15 per cent to around 50 per cent, as well as other penalties.

Peter Switzer, founder of Switzer Financial Services, says the professional fees to set up an SMSF could be over $2000 and then it could cost that again each year for accounting services and an audit.

Switzer says a minimum amount to set up an SMSF should be $250,000. Some experts suggest they're not viable without $500,000 to $1 million in assets.

“Basically, the more complicated your [investments] and the more you buy and sell shares as well as other assets, the more the cost [of administration and management],” Switzer says.

The so-called “prudential rules” for SMSFs include:

  • The sole purpose test
  • In-house assets rules
  • Segregation of members' assets
  • Assets to be held in trusts for members
  • The investment strategy, which must be in writing
  • Contribution rules
  • The limits to borrowing money from the fund
  • Tax reutrns
  • Capital gains tax compliance

That’s just to name just a few!

Questions to ask before setting up a SMSF

Switzer says there are a number of questions to ask before setting up a SMSF. These include:

  • What are the rules for setting up a self-managed super fund? (The Tax Office website is useful for this the question.)
  • Should I roll my employer paid super into my SMSF?
  • What is the maximum amount I can put in each year without being slugged by higher tax rates?
  • Which accountant will I use to administer and audit the fund?
  • How much will it cost for essential outside services?
  • What SMSF expenses are tax deductible?
  • What am I allowed to invest in?
  • Do I need to use a full service stockbroker or will a discount/online broker be good enough?
  • What should my portfolio of assets look like?
  • How often do I need to review my investments?
  • Am I really committed to teach myself to be my own financial planner?
  • Will my gains from doing it myself outweigh the costs of getting an expert to think through my investment alternatives?
Also ask yourself:
  • Are you keen to become your own fund manager and do your research?
  • How will you source investment advice for buying assets in the fund?
  • Will you outperform the professionals who run industry or retail funds?
  • How do I do an investment strategy?

Ensure you do plenty of research in order to determine whether you can gain from starting up an SMSF.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, July 02, 2010

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