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Self-managed superannuation is growing in prominence and that’s partly because – if done well – it can be a great vehicle for wealth creation and provide a more comfortable retirement.
SMSF - Is It for me?
1. What is a self-managed super fund (SMSF)?

Basically it is
• a special trust
• regulated by the Australian Tax Office and
• run by members for their own benefit

2. As a small business owner, how can I use my superannuation to build my wealth?

Many people who own or run small to mid-sized businesses have much of their wealth tied up in their business.

Building wealth through superannuation provides an avenue to diversify their wealth away from the day-to-day business activities and provides an environment that can be:

(a) tax effective, and

(b) offers additional asset protection.

It is a great vehicle for building retirement wealth.

An SMSF can act as a safety net for business owners, because it can be used as a source of wealth that sits outside their business and the risks associated with running one.

3. Why choose self-managed super?

Business owners tend to like having the ability to control their own destiny.

For this reason self-managed superannuation funds (SMSF) are often attractive to small and mid-sized business owners they offer a combination of flexibility and control of retirement investments.

How do I know if an SMSF is for me?

There are 3 key questions you should ask yourself:

(a) Do I have the skills and knowledge required to make investment decisions for my own retirement?

A SMSF is basically do-it-yourself super. You have to have the skills and knowledge to make investment decisions and decisions about your own retirement.

You can and should take advice from professionals but, ultimately, the responsibility lies with you.

(b) Am I prepared to accept the responsibility that comes with being a trustee?

All SMSF members must be a trustee or a director of a corporate trustee. You can be an individual trustee of your own SMSF, or a director of a corporate trustee.

Trustees are responsible for running the fund within the law and meeting audit and taxation obligations.

From the 1st July 2014 new laws allow for penalties to apply to SMSF trustees, including fines up to $10,200 for breaches of the Superannuation Industry Supervision (SIS) Act.

(c) Do I have enough investments to make it worthwhile?

I’m often asked ‘how much do I need to set up my own SMSF?’ There’s no minimum amount in law, however there are some benchmarks published by ASIC and the ATO.

The ATO website features a number of publications and general information for people considering SMSF and, in their opinion, around $200,000 is an appropriate minimum benchmark.

As an indicative compliance cost associated with SMSF the ATO suggests you might be looking in the order of $2,000 per year on $200,000. That represents 1%, which is comparable with a lot of the management expense ratios of public offer funds.

Whilst these are only guidelines, the most important consideration for having a fund with a balance of less than $200,000 is if you set it up with the strategic view to grow the SMSF in the short to medium term, or if it was used to purchase a strategic asset using a borrowing strategy.

Self-managed super FAQs

1. 1. Does a SMSF provide me with asset protection?

Generally assets held within a SMSF have an increased level of protection from business creditors, in the event of a business default or if there is litigation.

However, people should be aware commencing a pension within super may increase the exposure to creditors, and so increase the ability of creditors to access your retirement earnings.

If the member had provided a personal guarantee for the activities of the business – and small business owners are often required to do so – then that income stream could be attacked by a creditor in the event of a business default or personal bankruptcy.

2. 2. Can I use my SMSF as a family succession tool?

Many people don’t consider a SMSF as a tool for succession planning, but it can actually be used really effectively.

The key reason is a SMSF doesn’t have a finite life.

A lot of key family assets are held in discretionary family trusts which all do have a finite life – generally about 80 years – but a SMSF doesn’t have a shelf life.

It can be used to transfer assets between generations without actually triggering capital gains tax (CGT) or stamp duty - two major drawbacks when transferring assets between generations.