While the idea of an SMSF is appealing to more and more Australians, there are rules and regulations you need to adhere to before embarking on the journey. Here, we guide you through the process.
1. Know the system
Think you know the superannuation landscape? You might need to scrub up on your knowledge. Since 2017 a constellation of changes have been put in place, including new caps of $25,000 for before-tax contributions and $100,000 for after-tax contributions, and tougher financial penalties for SMSF trustees who breach the super rules. As recently as this financial year, new rules apply for downsizers using the sale of their home to boost super as well as many other new additions. Our point? Knowing the rules is the critical first step to a successful SMSF, because breaking them will cost you.
2. Call in backup
SMSFs are time-consuming. From administration to tax management and implementing your strategy, it’s not a simple process. Doing it alone isn’t advised unless you really know what you’re doing.
We recommend calling in backup in the form of a financial advisor, or accountant, with specialist knowledge in this field. Having these experts in place can save you time and money in the long run, while potentially helping you grow your super in ways you might not have thought of before.
When looking for the right fit for you, be sure to ask questions about their experience and knowledge with SMSFs. Quiz them on the current rules, regulations and changes to make sure they’re up-to-date on their knowledge.
Another tip? Use an online administration solution to help manage your super and provide real-time reporting and data analysis, while also helping your advisory team work from the same platform alongside you.
3. Lay the foundations
Before setting up your SMSF, you need to appoint a trustee. This could be your sole responsibility, or you could share responsibility with a spouse or other family members. But remember: the onus is on the trustee or trustees to keep their SMSF in check, so choose wisely.
Next, you need to get your legalities in order. This involves signing a declaration and preparing a trust deed, which establishes the rules of operation for your fund – including the powers of the trustees and payment to members. It isn’t a simple process and seeking legal advice is highly recommended to ensure your fund is set up sufficiently.
Finally, it’s time to register your fund with the ATO. You’ll also need to get an ABN and Tax File Number to complement your fund so you can file an annual tax return, pay levies and prepare annual audits.
4. Build your strategy
One of the legal requirements of an SMSF is to prepare and implement an investment strategy. This requires assessing questions like what are the objectives of the fund, will your fund hold insurance cover, what is the risk tolerance of your fund and much more. Again, it’s advised to seek professional help in building the strategy of your SMSF to ensure it’s working to your full advantage.
5. Take action
The time has come for you to invest – the power now lies in your hands. The key to a successful SMSF is to keep your portfolio nicely diversified. But perhaps most important of all is to regularly review your strategy to ensure it’s working for you and your current circumstances.
Rebecca is passionate about promoting the positive impact of quality financial advice on personal wellbeing. Read her full bio here.
