Self-managed super funds is growing in popularity but comes with complex rules

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1 Self-managed superannuation funds (SMSFs) are accessible to more Australians. Picture: Supplied Saver HQ Self-managed super funds is growing in popularity but comes with complex rules Tim McIntyre, News Corp Australia Network

2 January 23, :14pm THEY were once for the wealthy alone, but self-managed superannuation funds (SMSFs) now have a wider appeal and lower costs due to competition between providers mean they are accessible to more Australians. ATO figures show that as of September last year, million Australians are members of 582,000 SMSFs. Each year more than 30,000 new funds are established, making SMSFs one of Australia s fastest growing industries. But they are still complex and before establishing a fund, there are many things you need to be aware of. Here are just five. 1. Initial costs Start-up and ongoing costs for SMSFs are still significant, according to Kurt Ohlsen, senior financial planner at Profile Financial Services. For a quality service, expect to spend around $2000 to set up and the same each year for ongoing, Mr Ohlsen said. It would rarely be worth investigating unless you hold at least around $200,000 in super, though this would have been $1 million a few years ago. 2. Administration and legal obligations SMSFs require time consuming administration to remain compliant and must be audited annually by an independent auditor registered with ASIC. Accurate tax and super records must be kept for a range of five to 10 years, while minutes must be taken of investment decisions and an annual return must be lodged, even if no contributions or payments are made in the financial year.

3 Superannuation is a tricky ship to sail alone. Picture: istock 3. Sole purpose test Your SMSF must exist for the sole purpose of funding your retirement, which means you cannot personally access the assets until the retirement phase, which for most people is age 60. If you buy residential property, you can t live in it yourself, or rent it to anyone related to or associated with you, Mr Ohlsen said. This rule extends to all forms of investment, including less common assets such as wine, which cannot be consumed; and art, which must be stored away. We don t recommend art, Genene Wilson, senior financial planner at Omniwealth, said. Investments such as art, jewellery and wine cannot provide a present day benefit to the member or related parties and cannot be displayed or stored in a private residence.

4 This great view cannot be enjoyed by you or your family, until retirement. 4. Borrowing to invest Australians often want to access their super to invest in real estate, but unless there is already enough money in the fund to buy a property outright, they will need to borrow and that is where the law gets tricky. SMSF loans require personal guarantees, which can hinder you from taking out loans outside of super, says Scott McCray of Smartline Mortgage Brokers. If you borrow to buy property in your SMSF, your personal borrowing power can be drastically reduced, Mr McCray said. The property is owned by the SMSF. You guarantee the loan personally, but do not own the property or receive the rent. Superannuation contributions are limited, so it is important to know your fund must be able to service any loan using only 9.5 per cent of your salary, plus any rental income that the property generates. Once retirement arrives, you can access the growth in value of the property, plus the rental income that the fund has accumulated.

5 Compulsory superannuation has been in place in Australia since The penalties Penalties for noncompliance in certain aspects of an SMSF are enormous, which is why utmost care should be taken when handling the administrative side yourself. There are a range of penalties in place from being made to undergo education, right up to severe penalties for knowing illegal behaviour. These can include fines of up to $340,000 and jail terms of up to five years. More details of penalties can be found courtesy of the ATO at Daily Telegraph 23 January 2017 page 33