Thinking of establishing a SMSF for the coming new financial year?
Self Managed Super Funds (SMSF) are different to normal retail super funds in that members are in control of their fund’s operation and investment. Members are not only responsible for the overall investment strategy but also responsible for the legal and statutory requirements.
While SMSFs are effective for some people, they don’t suit everyone. Managing your own super takes time, knowledge, skill and money. So before deciding to set up an SMSF, it’s important to understand the following:
Q: Is there any minimum amount required to set up SMSF?
A: There is no prescribed minimum amount under the law. However many commentators suggest you need around $200,000 in funds to make the costs of a SMSF worthwhile. Less than this amount the fund may have difficulty earning enough to make set-up and running costs worthwhile.
Q: How much does it cost to run an SMSF?
A: SMSFs can typically cost around $1,700 - $3,000 annually to run, depending on the number of transactions and complexity of tax issues encountered during the compliance processes. This excludes the cost of the annual audit fee which will normally cost between $500 and $800.
Q: How many people can be members of the SMSF?
A: SMSF must have at least ONE, but not more than FOUR. It is further requirement that all members must also be trustees of the fund to ensure that they are fully involved and responsible for the operations and participate equally in the investment decision-making processes.
Q: How much contributions the fund can accept?
A: For concessional contributions (before tax contributions) each member over 50 years of age can contribute up to $50,000 and each member under 50 years of age can contribute up to $25,000. For non-concessional contributions (after tax contributions) each member can contribute up to $150,000 or $450,000 over three years. Any amount exceeding contribution thresholds will trigger excess contributions tax.
Q: What can a SMSF invest in?
A: A SMSF can invest in wide range of assets located in Australia or overseas subject to the fund’s written investment strategy. The strategy sets out the guidelines and objectives of the SMSF by taking into consideration the risk, diversification, growth and ideal returns of the fund. Certain limitations apply to investments in entities operated by related parties.
Q: Can a SMSF borrow money?
A: In general, a SMSF is prohibited to borrow money except in limited circumstances such as borrowings for a maximum term of 90 days to meet the benefit payments due to members or surcharge liability as long as the borrowings do not exceed 10% of the fund’s total assets. However, a SMSF can use a vehicle known as a Bare Trust to limit the fund’s exposure to purchase property assets.
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