How much money do I have to have in my super to make it worthwhile for a self-managed super fund to be appropriate for me? I have heard there is a lot of admin that goes with SMSF’s?
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Generally, the industry agrees that in order for a SMSF structure to be cost effective the minimum fund size should be at least $200,000. However, in some circumstances the establishment of a SMSF may be appropriate for funds under this limit; for example, an expectation that further contributions will be made when a property is sold, or significant regular super contributions through Salary Sacrifice and/or additional after tax contributions of surplus cash flow or cash.
It is also worth considering whether the establishment of an SMSF is necessary in order to achieve the goals you have for your Super Fund. For example, there are many Retail and Industry Funds these days which enable you to invest into a wide menu of managed funds, direct shares, term deposits and cash management accounts that may mean you simply do not need to have an SMSF to achieve your desired outcomes.
One real benefit of an SMSF is the ability to invest in business real property, where appropriate. An example of this might be a chiropractor owning their practice offices through an SMSF. Once the property is owned by the SMSF, it can lease it back to the business. The acquisition or transfer and the lease agreement all need to be on arm’s-length terms. These concessions provide for the ownership of your property by your SMSF and then the fund can lease it back to the business you operate. The rental income and any future capital gains are then taxed at the concessional tax rates available to superannuation. In the right circumstances, it is a great way to accumulate funds within your SMSF for your retirement.
Finally, the role of becoming a Trustee of an SMSF should not be underestimated. This role can be very time consuming, involve up to 4 hours per week in record keeping and compliance work1, and the penalties for non-compliance include fines, disqualification and even criminal prosecution. It’s well worth consulting a Financial Adviser if you’re considering starting an SMSF, or to see if the retention of an existing SMSF is right for you.
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