Self-managed super – is it for me?

Just what does a self-managed super fund offer and how can you tell if self-managed super is for you?

To answer these questions, and many more, we’ve called on a long-time accounting partner of ours, Chapman Eastway, a specialist firm we have known and worked with for more than 25 years

Chapman Eastway is a family and business advisory firm based in Sydney, and one of the highly respected service providers in the JPAbusiness network.

Chapman Eastway Principal Michael Pisani has kindly agreed to share his expertise on this topic with us.

A chartered accountant and specialist tax advisor, Michael has a special interest in SMSFs, along with the provision of related taxation advice.

Michael has more than 10 years experience providing taxation and business advisory services to a diverse group of corporate and private clients. He has a strong technical background with experience in group restructuring, retirement and succession planning, ongoing taxation planning and family wealth preservation.

The superannuation 'safety net'

Comments by Michael Pisani
Chapman Eastway

1. As a small to mid-sized private business owner, how can I use my superannuation to build my wealth?

Many people who own or run small to mid-sized businesses have much of their wealth tied up in their business.

Building wealth through superannuation provides an avenue to diversify their wealth away from the day-to-day business activities and provides an environment that can be:

1. tax effective, and
   
2. offers additional asset protection.

It is a great vehicle for building retirement wealth.

I see superannuation as providing a bit of a safety net for business owners, because it can be used as a source of wealth that sits outside their business.

Why choose self-managed super?

Business owners tend to like having the ability to control their own destiny.

For this reason self-managed superannuation funds (SMSF) are often attractive to small and mid-sized business owners; they offer a combination of flexibility and control of retirement investments.

What is a self-managed super fund (SMSF)?

Almost anyone can have a SMSF. Basically it is

• A special trust;
• Regulated by the Australian Taxation Office;
• Run by members for their own benefit.
  

SMSFs growing in popularity

At the end of June 2013 the Australian Tax Office (ATO) reported:

• More than 500,000 SMSFs in Australia – a rise of about 35% since June 2008
• Approximately 960,000 members
• $495 billion held by SMSFs – about one-third of all superannuation
• At June 30 2012, 25.6% of SMSFs were valued $200k-$500k

2. How do I know if a SMSF is for me?

There are 3 key questions you should consider before heading down the SMSF route:

1) Do I have the skills and knowledge required to make investment decisions for my own retirement?

A SMSF is basically do-it-yourself super. You have to have the skills and knowledge to make investment decisions and decisions about your own retirement.

You can and should take advice from professionals but, ultimately, the responsibility lies with you.

2) Am I prepared to accept the responsibility that comes with being a trustee?

All SMSF members must be a trustee or a director of a corporate trustee. You can be an individual trustee of your own SMSF, or a director of a corporate trustee.

Trustees are responsible for running the fund within the law and meeting audit and taxation obligations.

In December 2013 the government announced new penalties applying to SMSF trustees, including fines up to $10,200 for breaches of the Superannuation Industry Supervision (SIS) Act.

3) Do I have enough investments to make it worthwhile?

I’m often asked ‘how much do I need to set up my own SMSF?’ There’s no minimum amount in law, however there are some benchmarks published by ASIC and the ATO.

The ATO website features a number of publications and general information for people considering SMSF and, in their opinion, around $200,000 is an appropriate minimum benchmark.

As an indicative compliance cost associated with SMSF the ATO suggests you might be looking in the order of $2000 per year on $200,000. That represents 1%, which is comparable with a lot of the management expense ratios of public offer funds.

I’m happy to accept their guidelines, however I think you could consider having a fund with a balance of less than $200,000 if you set it up with the strategic view to grow the SMSF in the short to medium term, or if it was used to purchase a strategic asset. 

First pulished by James Price, August 10, 2014. Revised and republished July 2016.

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James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.