All Topics / Help Needed! / SMSF set up

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  • Profile photo of Newcastle KnightNewcastle Knight
    Member
    @newcastle-knight
    Join Date: 2012
    Post Count: 27

    Hi everyone

       I am looking at setting up my own SMSF and I am just after some advice from anyone who may have or has set up their own SMSF and has any pointers. I have $110K in  my super and want to know what is the best way to structure it to protect my assets like my house which we own outright.

    Is it better to set up a trust, business, company or any other set up?

    How can I guarantee to protect my personal assets?

    What are the general fees associated with SMSF's?

    As it is at the moment I do not pay any tax on super but will this change?

    Are there any other things that may be handy to know?

    Also is it true that you are not allowed to borrow money to buy investment properties etc with your SMSF's. 

        Thanks for reading

        Troy (Newcastle Knight)

    Profile photo of gmh454gmh454
    Member
    @gmh454
    Join Date: 2003
    Post Count: 537

    why do you think your personal assets are at risk with a SMSF,

    what are you planing to do with it

    and yes you do pay tax on your super contributions and profit (if it ever makes any) you obviously don't know it, but you have for years, as you fund has paid it.

    I would suggest you start reading very carefully as your current conceptions of Super are a fair way off what you will need to know to run a fund.

    and a SMSF can cost between approx $1,000 per year to four or five times that depending on how many transactions it has and how complicated those transactions are, and how good you keep your records.

    they charge by the hour, so less work at their end = cheaper bill at yours

    also factor in around $300 for audit costs, and $200 for filing fees with the gumnut.

    good luck

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Troy (My 19 year old daughter is a massive Knights fan so would love your handle)

    Your understanding of SMSF's seem to be well off the mark so feel free to drop me an email and I will send you my Ebook i wrote last year on SMSF and borrowing within the fund to buy property.

    That way it can at least put your mind at rest on a lot of the issues.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Troy

    I have set up my own SMSF within the last 12 mths and used it to buy property.  Here are my comments:

    Setup cost of SMSF was $1600.

    I chose to have a corporate trustee.  You have to anyway if your SMSF has only one member.  Either way, corporate trustee is better for asset protection.  This is because if you personally get sued for something, then the SMSF assets are safe because they are owned by a different entity.  (Law suits are raised against an entity such as a person or a company).  YOU are one entity.  The corporate trustee (eg ABC pty ltd)  holding the SMSF assets is a separate entity.  Make sense?

    My SMSF bought a 3BR house and borrowed 80% from St George Bank.  St George Bank required the asset is held under a bare trust, which cost just shy of $1000 to set up.

    My annual costs to run my SMSF are $660 for tax return and audit purposes.  I've got my death and TPD (total & permanent disability insurance) in my SMSF as well at a cost of $60 per month.  Whether you realise it or not you have death and TPD insurance in your superannuation, which you will forfeit when you roll all your cash out of regular super.  You don't want to be exposed so make sure you are insured somewhere.

    The bank will charge $5 per month for account fees on your SMSF's transaction account.

    There will be all the usual annual costs for any property the SMSF buys (council rates, water rates, insurance, mortgage interest, maintenance costs re plumber etc, property management costs). 

    Whether you realise it or not you ARE being taxed on your super money at the moment.  It just doesn't get taxed until it lands in your super.  If you look at the statements you will see 15% comes out for tax.

    Your SMSF will pay 15% tax on any profits.  That means:

    You work out your SMSF's income.  This will be your contributions as deducted from your salary plus any bank interest it earns plus any rental income it earns plus any dividend income on shares etc etc.

    Then you work out your costs.  So  smsf accounting fees, death and tpd insurance, bank fees, property holding costs eg council rates, water rates, insurance, mortgage interest, maintenance costs re plumber etc, property management costs.

    You then do an income minus costs calculation and the end figure is what is subject to 15% tax (if it is a profit figure. obviously no tax will be owing if there was a loss…. but you do not want to be running a SMSF at a loss).

    Go for a property that is in a high demand area that is not going to have zero demand if the one and only industry in town goes bust or moves out.  You also want to aim for a rental yield of no less than 6.2% in my opinion.

    Richard Taylor sorted out the SMSF mortgage for me.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    ps after your SMSF submits its first tax return, if there is tax owing you have to pay that plus the tax the ATO estimates your SMSF will owe the following year.  They call it PAYG or some such thing.  Anyway the point is be aware of it and plan for it.  I'd say softly does it in the first year of your SMSF.  Open the SMSF, get it some bank accounts, roll your money into it, and also take out death and tpd insurance.  Buy its first property and then just get used to the process.  Do its first tax return, review your position and then evaluate when your SMSF will be ready to buy its second property.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Newcastle KnightNewcastle Knight
    Member
    @newcastle-knight
    Join Date: 2012
    Post Count: 27

    Hi all who have commented

        Thank you very much for sharing your time to try and help me out.

    GMH454 you are spot on with my knowledge of SMSF's and I really need to understand it before setting one up which is my main reasoning for this post.

    Richard Taylor, thank you for the offer of the E-book, I will take you up on it as stated in the email I have sent you.

    JacM, wow that is some very handy little tips that I would have never even thought about , i.e death and TPD insurance, among other things as well.

         Thank you again and goodluck with all of your ventures

         Cheers Troy (Newcastle Knight)

    PS All comments are very valuable to me

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    JacM wrote:
      This is because if you personally get sued for something, then the SMSF assets are safe because they are owned by a different entity.  (Law suits are raised against an entity such as a person or a company).

    This is not correct JacM,

    If you as an individual are trustee of the SMSF and you get sued then the assets of the fund are not your property and generally cannot be touched. The Bankruptcy Act has an express exemption in the definition of 'property' so that it does not include assets held on trust for another.

    Why you want a corporate trustee of a trust, including a SMSF, is because of the asset protection if the trust itself is sued. Say a tenant falls out of the window that was not properly fixed in a rental property. The tenant would sue the owner which is the trustee. The trustee would be you or the company. If they win you would have pay them $x, but you would have a right for this to be paid for out of the assets of the trust. If the trust assets are not enough then you still have to pay. That is why it shoudn't be you, but a company.

    There are heaps of other reasons as well – such as death, passing on control of the fund etc.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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