5 Questions To Consider Before Setting Up An SMSF

Questions you need to answer before Setting Up an SMSF

If your reading this, chances are your considering setting up an SMSF or at a minimum are looking for information about setting up an SMSF. Maybe you heard a friend or a colleague go on a tangent about SMSF’s at a local barbeque and the idea of setting up an SMSF and taking control of your Superannuation is interesting and your looking to find out more.

Creating an SMSF is a very serious decision and not something to take lightly. This article is not here to persuade you but rather to merely provide factual information about SMSF’s to help you make an informed decision.

Below we’ve taken it upon ourselves to create some questions that you ought to answer before pulling the trigger on setting up an SMSF.

1. Why do you want an SMSF in the first place?

SMSFs have been growing in popularity, especially with the value of the property market soaring in Australia. Jumping on the bandwagon and starting a SMSF because it’s become a “trendy” thing to do is not really good enough. SMSF’s aren’t for everyone and it’s important to “look before you leap”.

Deciding to become a trustee of an SMSF is a positive step towards retirement planning but it’s not a decision to be made lightly.

If you determine that an SMSF is right for you, there are some important steps you should take and on which you should consider seeking professional advice.

The ATO has outlined some great resources on things like:

2. How many people will be in your SMSF?

SMSF’s have the opportunity to have as many as 3 other members inside the SMSF. With CloudSuper you will save money as we charge a flat rate per fund not per person.
That said, It’s important to understand that sharing investments with other people has some risks as well. There must also be a provision for every possible eventuality including bankruptcy or death of any member as well as if a member wants to close the fund.

3. Do you understand the rules you need to abide by?

You may have decided to go for a particular investment based on your personal interests. You should be aware that there are certain rules that the ATO imposes on SMSF trustees. The ATO has the “sole purpose test” which restricts what investment activities SMSF trustees are allowed to partake in.

Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.

4. Is Your Super Balance High Enough to Make it Worthwhile?

We’ve written an article and busted the 200K minimum balance myth however the reality is, there may be a point where it’s not worthwhile for you to set up an SMSF if you don’t have enough in your SMSF. If you want personal advice on this, We recommend that you consult a licensed or authorised financial adviser if you require any element of financial advice.

CloudSuper can help reduce the barriers to entry by offering lower Accounting & Audit fees than a traditional accounting firm would offer, however the balance is still something worth considering.

5. What’s Your Investment Strategy

Prior to Investing your Superannuation, by law it is necessary to have one. An investment strategy will This sets out your fund’s investment objectives and specifies the types of investments your fund can make. Your investment strategy should be in writing and must:

Be reviewed regularly to ensure it continues to reflect the purpose and circumstances of your fund and its members (your review and any decisions made should be documented

Consider whether to hold insurance cover (such as life insurance) for each member of your SMSF.

When preparing and reviewing your investment strategy, take into account the personal circumstances of all the fund members, including their age and risk tolerance. You need to consider:

  • Diversification (investing in a range of assets and asset classes)
  • The liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses)
  • The fund’s ability to pay benefits (when members retire) and other costs it incurs
  • The members’ needs and circumstances (for example, their age and retirement needs).


Leave a comment