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SMSF – Your questions answered, day five – how can I start my SMSF?

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So you’ve made up your mind, you want to take the plunge and begin paving your own super future? Well, before you start, it’s important to find out as much as possible about the rules and regulations surrounding SMSFs.

The Australian Taxation Office’s website is a great starting point for those wanting to get into a SMSF as they regulate these funds.

You will need to go to an accountant or adviser to create a trust, which underlies your SMSF. Next, you obtain a tax file number and an Australian Business Number. Then write down your investment strategy and open a bank account for the fund.

Accountants are good for the establishment stuff but can’t give financial advice unless they are also financial planners. The deed outlines who the members are. As it’s a legal document, you’ll need to enlist the help of someone who is qualified to draft up the deed.

Four is the maximum number of appointed trustees. They must be over 18 and can be a trustee if they are not undischarged bankrupts or have not been convicted for an offence related to dishonesty. Each trustee has to be across what the fund does.

The tasks involved with a fund include filing an annual tax return, lodging member contributions statements and appointing an approved auditor to complete the annual audit. You’ll need to decide whether you’ll execute these tasks using your own expertise or enlist professional help. This is the time to cast your net out and add some reliable and clued-in experts to your Rolodex.

You need to decide to be regulated by the Superannuation Industry (Supervision) Act (SISA) to get the concessional tax treatment. Your accountant will generally do this legwork.

You can get an accountant and along with a financial adviser get the whole thing set up. Then you can devise your investment strategy or create it with an adviser.

With your strategy you could, for example, state that you have a high-risk profile and you intend to be fully invested in shares. On the other hand, you could be very conservative with only 30 per cent exposed to shares and 70 per cent in fixed interest securities. For someone who loves investing and is comfortable with paperwork and being organised, a SMSF can be a good idea. Given a SMSF is taxed at 15 per cent and company tax is 30 per cent, many investors always buy fully franked dividend stocks so they pick up tax credits which reduces the tax on the SMSF. I have seen some funds actually get tax refunds or have no tax to pay.

By the way, if you make mistakes in running your SMSF your fund could be denied its tax concessions and you could end up with a big tax bill! If you decide to do it, do it professionally. 

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, December 24, 2010

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