SMSF Basics

Is a SMSF right for me ?
If you've read or heard of the benefits of self managed superannuation, such as on our Key Benefits of SMSFs page, and you think its all sounding pretty good and you'd like to dive straight into it, STOP, take a breather, and read on. Whilst SMSFs can sound great, the plain fact is that they just simply don't suit everyone, and in some cases are just not appropriate.

Before you establish a new SMSF, you absolutely need to make sure that you understand what your taking on, you need to thoroughly familiarise yourself with the role and responsibility of being a SMSF trustee, and you need to be sure that you are suited to running a SMSF. This is very important, and we cant stress it enough.


Does an SMSF suit me, and is it appropriate ?

There are 3 main area's to look at when deciding on the appropriateness of a SMSF:


1. Account size

The question of "How much do i need in Super for a SMSF to be viable" is really a question of how much are you prepared to pay, as a % of your fund, in admin fees, and the actual level of those ongoing admin fees. The ongoing admin fees for a SMSF do vary considerably (see our Comparison table of SMSF administrators), but lets say it averages around about $2,000 pa. So if you have $100,000, that is 2% of your fund you are paying in fees, which is comparable to the total cost of a fully loaded retail super fund. If you have $200,000, it is only 1%, which is more like a wholesale or industry fund. For higher balances, the % cost gets lower and lower, and is very cost effective for very high super balances. So as a rule of thumb, $100K to $200K is the norm as a minimum, with the lower amount of $100,000 assuming a lower than average ongoing admin cost. A bit less than $100K, where you are looking at increasing it quickly to that threshold via contributions might be OK, again depending on your actual admin fees. The thing that is not desirable is a whole bunch of people with small super fund balances setting up a SMSF, where the ongoing costs are a high percentage of their expected return as this starts to defeat the purpose of a super fund.

Remember, a SMSF can have up to 4 members, (although the vast majority are 2 member, husband and wife funds), and the thresholds mentioned above are the combined account balances of each member's benefits in the SMSF.


2. Trustee awareness & skills

Establishing a SMSF means that you are the trustee of the fund (or a director of the company that is a corporate trustee), and hence you need to be ready and able to take on the responsibilities of being a super fund trustee. Trustees are legally responsible for all the decisions made in a SMSF, for running the fund and getting end of year admin and audits completed, and even though you can get professional help, you are still ultimately responsible for complying with the SIS Act. You are also responsible for creating an investment strategy, and adhering to it. Hence, the appropriate type of trustee to establish a SMSF is one who takes an active interest in investment markets, is willing to learn what the rules of Super are and comply with all of them, and is generally a fairly DIY / hands on kind of person who likes to be involved in the decision making process. Historically, small business owners have been a large part of this market due to their personal nature of charting their own destiny, and a willingness to take on responsibility.


3. Zero tolerance compliance

The penalties for trustees for non-compliance with the Super rules are some of the most brutal that exist. Trustees who like to take an approach of being a bit slack with documentation, or "doing something sneaky" and will take their chances of getting away with it are not ones that have any place in the trusteeship of a SMSF. The ONLY trustees that are appropriate are those that are willing to adhere to a zero tolerance policy of compliance with all SIS laws.

The ATO, as the regulator of SMSF's, has two excellent information booklets (with links below) available that we recommmend every potential trustee should read and have on hand, which explain the responsibilities of being a SMSF trustee. We recommend you order them in hardcopy from the ATO website. Alternatively, we've provided the links below to the softcopy which you can read or print out.


DO NOT PROCEED with setting up a new SMSF until you have read these (below) and understand and accept your trustee responsibilities.


Click Here - Thinking about Self Managed Super

Click Here - Running a Self Managed Super Fund now lets assume you've revised all this material on what it means to have your own SMSF, and your comfortable with the responsibilities of being a trustee, the next step is to establish your own DIY / Self Managed Superannuation Fund.


Go to our How to setup a SMSF page.


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