Taking control of your super
For those who are ready to take control of their own super investments, you can setup your self managed super fund to ensure a constant income stream for retirement. Make the most of your investment and find the fund most suitable for you.
Superannuation is an important way to build long-term wealth and provide income in retirement. Self managed superannuation funds (SMSFs) are a popular choice and Australian employees and the self employed have embraced the concept in large numbers.
With a self-managed fund, you can hold and grow your money to provide income for retirement. If you already have reasonable retirement savings say - $200,000 plus - then a self-managed fund may suit your needs. Our approach to self-managed super is to give you ultimate control over your investment while providing advice and support.
At Yellow Brick Road, we have a team of wealth professionals who have many years’ experience in establishing and managing these funds. One size doesn't fit all and we can advise you on whether a self-managed fund suits your needs. If it does, then we can establish, administer and advise on tax, investments and life insurance for your fund.
These funds require a trust deed, trustees, members, a bank account and an investment strategy. We can arrange everything you need and customise a structure to meet your specific requirements. Combining our establishment service with a package of compliance and administration services creates a powerful and competitive SMSF solution.
Keeping up to date with the latest changes in super can be time consuming and stressful for trustees. If they're without support, mistakes can be made and penalties may be high. It's therefore crucial to get good advice. That's where we come in. We can keep you up to date with the latest super rules and provide advice and strategies for complying with rule changes. Your fund's position and performance is reported to you regularly along with all the other components of your financial strategy.
Benefits of a self managed super fund
Investment control and flexibility
Most people choose SMSF in order to have control over their superannuation investments. Yellow Brick Road recommends trustees maintain good knowledge of their investments and a strong level of control over their SMSFs assets. We can assist trustees with their knowledge and understanding.
Range of investment options
Investment via a SMSF is different to investing via a large public offer fund. In a retail superannuation fund, investors typically choose from the range of investments that the trustee offers. This can be restrictive. In a SMSF, you're responsible for the investment choice and are making a selection from a much larger 'universe' of investments. It's also possible in certain circumstances to move investments you already own into your SMSF.
Our trust deed gives trustees broad investment powers. This, combined with a well-tailored investment strategy and quality reporting, can really make a difference. Trustees have the flexibility to invest in direct shares, real property, listed and unlisted managed investments and fixed interest and cash solutions. The list doesn't stop there but those asset classes cover the majority of fund investments.
Real estate through your super
Retail & Industry Super funds typically don't offer direct investments in property or allow geared direct property. A SMSF can be a useful vehicle for long-term wealth creation and diversification into these areas. Yellow Brick Road can assist trustees with decisions around property. We can also provide specific advice on the rules for borrowing within a SMSF to purchase property.
The significant tax benefits of superannuation, combined with the control and flexibility of a SMSF, create a great opportunity to invest for the long-term and build wealth for retirement while paying less tax.
To create a self-managed super fund, together including all required paperwork and lodgements: $1,798 (including GST). This includes:
- Establishment of the trust deed
- Establishment of a corporate trustee
- Preparation of Trustee Minutes and Membership applications
- Trustee consent forms, Pro forma Trustee Investment Strategy
- Relevant company consent forms, minutes of meetings and share certificates
- A bank account pack, including letter to client's bank manager
- A tax and business pack, including forms to elect a public offer and ABN application forms
In addition, your advisor will charge you a fee for advice regarding investment, risk and all other necessary matters and will discuss and come to an agreement on these fees with you separately and in writing.
For ongoing Fund Administration, Compliance and annual Audit: $2,199 p.a. (including GST). This includes:
- Preparation of financial accounts
- Preparation and lodgement of annual tax return
- Preparation of Member Statements
- Preparation and lodgement of Installment Activity Statements
- Maintenance of SMSF Minutes and member records and monitoring contribution thresholds
- Facilitating the Fund’s annual audit
- Annual review of Corporate Trustee Minutes, registers, filing fee and lodgements with ASIC
- Note that certain more administratively complex investments will incur an additional charge
Establish a Security Trust (when borrowing and purchasing a direct property): $3,499 (including GST). This includes:
- Establishment of the Security Trust
- Establishment of a Security Trustee
- Establishment advice and Statement of Advice
- Limited Recourse Loan Agreements
- SMSF Investment Strategies with clauses allowing for SMSF borrowing
- Limited Statement of Advice – required by certain lenders
Risks of investing in SMSF
The growth in the self-managed super fund segment to the point where it is now the largest component of our superannuation system has been both welcomed as a sign of more Australians being actively engaged with their retirement savings and fretted over by those who would rather people stay within the more paternalistic prudentially regulated institutional funds. There have been considerable discussions about the potential risks involved, some of which are highlighted below. Confusion around the rules and regulation of property investment using SMSFs is to blame for much of the deception. Even before you get started, you must ensure that you understand the complex requirements of how an SMSF operates, the legal obligations and responsibilities.
Individuals must first have a risk tolerance and be aware that investing within an SMSF is a long term strategy, therefore consideration must be given to time, strategy, the liquidity of funds and the fund’s assets. The loan arrangements are more complicated - there are certain thresholds for borrowing within an SMSF, i.e. you need to have a certain amount of funds available and LVR restrictions in order to borrow funds.
The SMSF can’t use the borrowed monies to ‘improve’ a purchased asset, although the borrowed money can be used to ‘repair’ or ‘maintain’ an asset. Any recourse that the lender has under the Limited Recourse Borrowing Arrangement (LRBA) against the SMSF trustees is limited to the single fund asset (including rights to income). Lenders can legally demand an individual to provide a personal guarantee as long as the guarantor’s rights against the principal debtor (SMSF trustee) are limited to rights relating to the asset acquired under the LRBA. What this means is that the lender has a right to call on the guarantor for any shortfall after disposal of the original asset, or if repayments are not met. Furthermore, there are tax consequences and restrictions on the use of the investments within an SMSF, i.e. if you are investing in a new home, this can only be used for investment purposes, not owner occupied.
Replacing the asset subject to the LRBA is possible only in very specific circumstances. In the more extreme circumstances, such as nil interest being charged, and/or very high loan valuation ratios, the ATO has warned that the favourable terms could mean any income derived from the arrangement could be treated as ‘non-arm’s length income’ and taxed at 47% (rather than 15% in accumulation phase, or nil in pension phase).
One must ensure that the SMSF trust deed allows for gearing and if rolling over funds from an existing superannuation, ensure that it allows funds to be rolled over. For example, there are some government based superannuation funds that do not allow certain types of funds to be rolled over. Further consideration must be given to any existing benefits that might get affected by rolling over funds to an SMSF, i.e. loss of insurance benefits.
To ensure a safe entry into property investment with an SMSF, you must seek professional advice.