Author: Ryan Bultitude
Don’t get stung with Self-Managed Superannuation Funds (SMSFs). Understanding the common mistakes people can make will ensure your money will be there when you need it most.
I have had many clients over the years who have owned and operated a Self-Managed Superannuation Fund. They have all had various purposes for wanting to have the SMSF exist, some reasons that were more valid than others. In this short article I will address 5 traps you can fall into when setting up and administering a fund, which may assist you when determining whether to set one up, hold off or seek further advice.
- Historically, I’ve had clients who were very keen to set up a fund when they only had a very minimal amount in super. This isn’t advisable as the compliance costs can be rather high, relative to the balance of a smaller fund, and will potentially reduce net earnings of the fund quite significantly.
- Some clients have their Accountant setup a SMSF for them and unfortunately the Accountant doesn’t have the experience nor the licensing to create the asset allocation and the investment strategy for the fund. This means the client is at risk of not having a sound investment strategy with rewarding investment returns, in turn creating a ripple effect into funding their retirement. In other words, the funds were not invested in line with the client’s investment timeframe, risk tolerance and financial goals. Often, I have come across funds with nothing more than cash as an investment.
- When a client sets up a SMSF, they essentially take an oath with the ATO to be responsible for keeping the compliance of the fund up to date, including annual financial statement preparation, audit requirements being satisfied and a handful of other action items. If these are not met then there is potential for fines and penalties, that can be charged directly to the individual trustee(s). Therefore, it is paramount that you understand your role and responsibilities in operating a SMSF before you make the decision to proceed.
- A large consideration and advantage for an SMSF is around insurances and wealth protection (as your insurance claim outcome is not reliant on the discretion of the external Superannuation Fund’s Trustee). However, I have often seen the insurance structures incorrectly held in the SMSF with the wrong ownership being reflected. Incorrect ownership is an issue, not only with the annual compliance of the fund, but also in the event of a claim being made.
- Many clients have setup a SMSF so they have the option to purchase residential or commercial property. This is a very complex transaction that occurs within the SMSF and involves the setup of separate trusts outside of the SMSF when there is borrowing involved. Without the correct professionals being engaged throughout every step of the property purchase, the transaction can easily fall over – at the cost of the Trustees of the fund.
There are many other traps and pitfalls to an SMSF, however, they can be avoided with the proper management, guidance and advice from your Financial Planner, Accountant and Solicitor.
If you would like to discuss how to establish a Self-Managed Superannuation Fund or would like advice as to how you could best utilise the one that you currently have, call your SMSF specialists at CCFPG or better still, book a complimentary initial meeting.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.