3 things to think about when setting up an SMSF

By Grace Ormsby

December 10 2019
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With the ATO scrutinising SMSFs more closely than ever, an SMSF adviser has highlighted three key areas of SMSFs that new members and trustees aren’t always aware of.

Things to think about when setting up an SMSF

For anyone who is thinking about setting up their own SMSF, director of Cooper Partners Financial Services Jemma Sanderson said that the first step in any SMSF journey is to speak to a financial adviser or accountant.

“They would be in the best position to advise on whether an SMSF is the right option for you,” she said, and can then put the steps in place to set up a fund, if it’s appropriate.

While Ms Sanderson considers superannuation to be “the best investment vehicle in Australia to accumulate wealth given the tax concessions available”, she said people need to be aware that those concessions are a privilege.

“Having a credible source setting up the fund and applying for the tax file number and ABN on behalf of the fund can ensure that this part of the process is quick, to then enable the rollover of benefits to the new fund to occur seamlessly,” she noted.

On an ongoing basis, “the fund needs to be managed appropriately and in line with the provisions, including being audited every year, to ensure that the concessions continue to apply,” she flagged.

In her experience, new clients often lack awareness around three key aspects of the SMSF process.

These are the three areas:

The loss of insurance

Ms Sanderson highlighted that SMSF members will lose their insurance where they are rolling over from an account that has cover to a new SMSF – because it won’t automatically contain cover.

“If they want cover in their SMSF, they have to actively obtain that cover, which some people are unaware of,” the director noted.

She said it’s prudent to get such cover in place before any rollover does occur.

The fund needs financial statements

Not only does the fund require financial statements, an annual tax return will need to be lodged and the SMSF will need to be audited.

While Ms Sanderson considered superannuation to be a great structure because of the tax concessions, it “is only on the basis that the fund remains complying, and part of that is having annual financials and audit”.

Roles and responsibilities

As the member of the SMSF is also a trustee, Ms Sanderson said “the buck stops with them” regarding the rules and responsibilities that are associated with such funds.

Being “self-managed” means that members, who are also trustees (or directors of the corporate trustee) must ensure that the fund is managed “for the sole purpose of providing retirement benefits to the members, and adhere to the rules and regulations regarding superannuation”.

“They need to ensure they are doing the right thing, which includes getting the financial statements and annual return completed in a timely manner”, among their other obligations.

ASIC commissioner Danielle Press has previously acknowledged that consumers are “all too well aware of the potential benefits that might stem from using an SMSF, but are not equally alive to the considerable risks and responsibilities that come with the deal.

She said it requires “real skill, care and diligence to manage your own superannuation”.

ASIC released a fact sheet that laid out six separate areas potential investors need to consider when deciding if an SMSF is the right move for them, which was later slammed as being “fake news”.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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Retirement