Once you have assembled the right team, chosen your trustees and developed a trust deed, there are a few more steps to getting your SMSF underway. Your Money Magazine helps you get through the pointy end of the process.
4. Register your SMSF with the ATO
After legally establishing your fund with a trustee declaration, you need to register your fund with the ATO - so you can become eligible for that great concessional tax rate.
An Australian Business Number (ABN) and Tax File Number (TFN) are required. If the fund’s annual turnover is greater than $75,000, you will also need to register for GST within 60 days of establishing the fund.
Once a trustee has elected to become regulated, the decision cannot be reversed without winding up the fund and you’ll be legally required to:
• lodge an SMSF annual tax return
• pay the supervisory levy of $45 per year
• have an annual audit report prepared
5. Open a dedicated bank account
Opening a separate bank account dedicated to your SMSF will keep your super fund assets well away from your personal assets and simplify account-keeping and administration.
You can then use this account to receive any new contributions and/or rollovers from other super funds, pay all fund-related bills and loan payments, and keep track of benefits paid to members.
6. Invest, invest, invest!
Within certain guidelines, you can borrow to invest in shares, property and other assets, leverage off their existing capital to multiply their growth, and pay less tax.
Australian shares are popular among SMSF investors, for its liquidity and tax-effective dividend payments. Shares are most suitable if you’re interested in actively monitoring the market or you have an advisor to help you develop an appropriately diversified portfolio.
SMSF owners also have the option to leverage their assets using margin loans to help their investments grow faster.
Since 2007, SMSFs have been able to borrow to invest in property, there are lending limitations. The most they can borrow (LVR) is 80% of the property value and, in the case of warrants, one year’s interest is payable in advance. Properties must be geared in such a way that they provide a positive cash-flow.
The benefits are a maximum of 10% capital gains tax (CGT) payable on the sale of the property as long as the fund has held it for at least 12 months. Potentially, there could be no CGT bill if the property is sold after you retire.
Better interest rates and volatile markets recently have seen many SMSF investors opting for the safety of cash. There is no doubt that when markets crash, cash is king; but the opportunity cost of relying solely on cash and fixed interest for your retirement is a risk in itself if you miss the rebound in other markets.
And there you have it – the six steps to realising your SMSF. There is one caveat to keep in mind: the in-house assets rule. This stipulates that no more than 5% of your SMSF assets must in any way benefit you or the other trustees before your retirement. This includes assets such as your home, collectibles or anything else that is personally used.