How much money do you need?
It costs money to set up and run an SMSF. You might find that the fees you pay for an SMSF are more than you would pay in another type of super fund.
If you are considering your own SMSF you need to decide whether the likely balance of the SMSF makes it cost-effective compared with your current super fund or funds.
If it is not cost-effective, it is very unlikely to be in your best interest to set up your own SMSF.
Starting balances below $200,000
In many cases, setting up an SMSF with a starting balance of $200,000 or below is unlikely to be the best superannuation option for you.
The costs of establishing and operating an SMSF with a balance of $200,000 or below are unlikely to be competitive, compared to a fund regulated by the Australian Prudential Regulation Authority (APRA).
Therefore, you may not be in a better position when compared to using an APRA-regulated superannuation fund.
Note: The figure of $200,000 is mentioned in ASIC Info 206 Guide as a result of independent research from Rice Warner, their consultation on that research and their assessment on what may be an appropriate minimum starting balance for an SMSF.
However, there are circumstances where an SMSF with a starting balance of below $200,000 may be in your best interests – for example:
- where, as the trustee, you are willing to undertake much of the administration of the SMSF and the management of the investments to make it more cost-effective, or
- where a large asset (e.g. business property or an inheritance) or funds in another superannuation account will be transferred into the fund within a short timeframe (e.g. within a few months) after the SMSF is set up.
There will also be circumstances when an SMSF with a starting balance of $200,000 or above is not in your best interest because it does not meet your objectives, financial situation or needs. Ask yourself whether you have the skills, time or experience to adequately carry out the duties of a trustee.
Setting up an SMSF
Once the decision has been made to proceed with an SMSF, the actual establishment doesn't have to be difficult. Professionals such as financial advisers, accountants and solicitors who specialise in this field are available to assist trustees with the necessary processes.
There are a number of steps you need to take in order to get your SMSF up and running.
- Obtain a Trust Deed
- Appoint the Trustees
- Elect to be regulated by the ATO
- Identify the members
- Apply for a Tax File Number for the SMSF, an ABN (if applicable) and/or GST registration (if applicable).
- Prepare an investment strategy
- Open a bank account
- Arrange appropriate wealth protection cover for all members
- Transfer existing super accounts
More information on setting up and running your own SMSF is available from the Australian Tax Office website.
Contact a Morgans adviser or your nearest office for more information.