Is a SMSF right for me?
No doubt you have heard of the benefits of Self Managed Superannuation Funds (SMSF), and most of you think that it all sounds to good to be true and you can't wait to be in control of your own superannuation! Well before you make this life altering decision you need to STOP, breathe and know what you are in for, as they are not for everyone.
When you are assessing if a SMSF will suit your financial situation, there are a few things you need to understand:
Account Size
How much will you need in super to make a SMSF viable, is the first consideration. You must keep in mind that there are ongoing administration fees, including annual auditing fees, these costs can run into the thousands. So let's say the fees are $2,000, if you only have $100k in your fund 2% will be chewed up in annual administration costs. If your fund balance is to low you would probably be better off keeping it in a retail fund without all the hassles and compliance associated with a SMSF.
Trustee Responsibilities and Skills
You as the trustee (or director of the trustee company) will be legally responsible for all the decisions, running the fund and all the administration and end of year audits. Even though you can get professional help you are still ultimately responsible for complying with the law.
The trustee must create an investment strategy and stick to it and understand all the strict laws and ensure that you do not breach any of them. It is a heavy responsibility as most taxpayers don't understand the complex nature of the SIS act and can inadvertently breach some of its provisions.
Strict Compliance Rules
The penalties for non-compliance with the Super rules are some of the harshest that exist. There is very little margin for error and a trustee that is slack with documentation or believes that they can “pull a sneaky” will invariably come undone at audit time and will jeopardise their entire super fund and the concessional tax treatment that applies to it.
Opportunity Cost
Many business owners like to be “master of their own destiny” and this is a great philosophy but may not necessarily benefit them in regard to a SMSF. All contributions and assets in the fund are effectively locked away until retirement or at least preservation age. Any businessperson knows that they may need access to assets to grow their business and that they will turnover more re-investing in business ventures than they can accumulate in a SMSF.
Couple this with the fact that at any time the government can change the rules that govern SMSFs and you might find that it is not necessarily as attractive a proposition as you first thought.