# SMSF research project by ATO



## Boggo (7 October 2009)

If you are a SMSF trustee it may be worthwhile having some input into this project by the ATO.

Bear in mind that the FP industry are having a say about how they believe that they should have their commission collecting little pinkies involved in the oversight of SMSF's to ensure compliance etc etc 

Copy of email below...

*SMSF trustees needed for super research*

_*Dear SMSF news subscribers

The Tax Office, on behalf of the Australian government, has commissioned research company, Colmar Brunton, to conduct a research project into the views of the community, employers and industry towards superannuation in Australia.

The main aim of the project is to provide an independent assessment of community attitudes and behaviours with regards to superannuation, including perceived strengths and weaknesses of current regulatory structures.

How you can help

Self-managed super fund trustees are a key group to be consulted, and we would greatly appreciate your involvement in the study.

Your views would be captured by way of phone interview, organised at a time convenient to you during mid to late October. The interview would be undertaken by a senior Colmar Brunton consultant, and would take between 30 minutes and 1 hour depending on how much you have to say. Your views would remain confidential, and would be combined with those of other stakeholders by way of a summary report only.

This is your opportunity to participate in a study that will help shape Government policy on superannuation issues in coming years. If you are interested in participating, please email Antonina Romeo at Colmar Brunton at antonina.romeo@cbr.com.au by cob Wednesday October 14.

A Colmar Brunton representative will then contact you to arrange a time for the phone interview.

We hope you will be able to be part of this important research.



Kind regards,

SMSF News Team*_


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## Julia (7 October 2009)

Many thanks, Boggo.  I'm keen to have my say on this.

Hopefully not too many people will participate with grizzles about how hard it is.
Wouldn't like to see the system changed.


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## Happy (8 October 2009)

I would like it changed, to make it cheaper to run as well as easier to start.

 As it is now you have to have Fund at least $100,000 with probably minimum being set at $200,000 and that’s a lot of Super to get rid of parasites, that all they worry about is to get their chop and possibly not be too far behind the Index!


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## prawn_86 (8 October 2009)

Happy said:


> I would like it changed, to make it cheaper to run as well as easier to start.




I agree. At the moment it is only for the wealthy, or those middle aged plus. For a young person to have SMSF just doesnt make sense, as their super balance is usually too low


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## Largesse (8 October 2009)

i've been salary sacrificing all my excess income into super since I was 20. (am 23 now)
its' nearly big enough that i can SMSF it


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## YELNATS (8 October 2009)

Julia said:


> Many thanks, Boggo.  I'm keen to have my say on this.
> 
> Hopefully not too many people will participate with grizzles about how hard it is.
> Wouldn't like to see the system changed.




I agree. If it ain't broke, don't mend it. I've had a SMSF for about 9 years and I work very closely with my accountant on all aspects, for which he only charges about $1600 p.a.


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## Happy (8 October 2009)

YELNATS said:


> ...
> 
> I work very closely with my accountant on all aspects, for which he *only charges* about $1600 p.a.






However *only $1600 *with compound interest over 30 or 40 years makes quite a dough by itself, not to mention that $1600 is *10%* if total fund is $16,000 or *100%* if your fund just started and has $1600 in it!

Not to mention that $1600 charge is on a low side of charges.


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## Sir Osisofliver (8 October 2009)

@ Happy,

It's my opinion that anyone who is telling you that you *need* $100,000 in Self Managed Superannuation is 

a) lying to you, or
b) is ignorant, or
c) wants a bigger commission from you.

About $50,000 is closer to the mark.

@ Largesse,

Why in HELL would you do that to yourself? *Smacks Largesse repeatedly with great vigour*

HOMEWORK FOR LARGESSE
Go make a spreadsheet that forward projects your return from super based upon the *last 40 years*.

Compare this to a) The market level of return over the same period b) Using a geared strategy of just 15% on the money.

You will hopefully realize that what you did was to...

a) Put control of your financial wellbeing into someone else's hands (until you can SMSF it) and
b) Killed any potential to COMPOUND USING GEARING FOR THE NEXT 40 YEARS

Sir O.

P.S. I don't want to see any tears on your homework when you realize how much you just cost yourself in retirement.


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## YELNATS (8 October 2009)

Happy said:


> However *only $1600 *with compound interest over 30 or 40 years makes quite a dough by itself, not to mention that $1600 is *10%* if total fund is $16,000 or *100%* if your fund just started and has $1600 in it!
> 
> Not to mention that $1600 charge is on a low side of charges.




Thought someone would come back with this comment.

I consider $1600 well spent in terms of the help and advice I receive from my accountant who has saved me much more than $1600 compounded over the last 9 years. And of course, it cost me a bit less in the earlier years.

My fund has become quite complex over the last few years, particularly a number of assets and with 4 family members in it, hence the annual charge is quite OK.

The moral is, find yourself a good accountant.


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## Happy (8 October 2009)

YELNATS said:


> Thought someone would come back with this comment.
> 
> ...





I can say that too, as Self-Super is prohibitively expensive for your first job and *first pay*.


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## Largesse (8 October 2009)

Sir Osisofliver said:


> @ Largesse,
> 
> Why in HELL would you do that to yourself? *Smacks Largesse repeatedly with great vigour*
> 
> ...





Hi Sir O,

Reasons for why I've done what I'ev done.
I am more than happy to be corrected and always appreciate a secondary point of view.

Firstly, my goal was always to remove myself from the claws of a fund manager as soon as possible, I was told that the realistic figure to set up a t SMSF was $50k, I felt this was achieveable quite easily if i contributed ontop of my super guarantee and utilized the goverment co-contributions.i'm now up to a touch over $30k. I expect to crack $50k by late 2010 as I've just got a new job that should see me with more disposable income.
Secondly, I looked at as a good incentive for me to save as a youngin'. 
Thirdly, I received the tax benefits by salary sacrificing now.
Fourthly, after I reach SMSF stage, I will have full control over a portfolio that is no longer subject to personal income tax and CGT.

In response to your issues: I don't care about average super returns over the last 40 years, as my goal is to get it to SMSF stage and then I will have full control over my returns. Re: Leverage, when SMSF is set up I will be able to invest in higher risk/return investments than I would normally be able to access through a fund manager, and also allocate my holdings exactly where I want them, I hope to be able to compensate for the lack of direct leverage by investing in companies that were geared themselves.

Feel free to dismantle

Thanks


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## Julia (8 October 2009)

Happy said:


> I would like it changed, to make it cheaper to run as well as easier to start.
> 
> As it is now you have to have Fund at least $100,000 with probably minimum being set at $200,000 and that’s a lot of Super to get rid of parasites, that all they worry about is to get their chop and possibly not be too far behind the Index!



The costs don't increase as your balance increases, e.g. I changed accountants two years ago, and now pay less p.a. than five years ago.
Average of $2000 p.a. for all accounting plus audit, including whatever contact I need with accountant during the year.



Happy said:


> However *only $1600 *with compound interest over 30 or 40 years makes quite a dough by itself, not to mention that $1600 is *10%* if total fund is $16,000 or *100%* if your fund just started and has $1600 in it!
> 
> Not to mention that $1600 charge is on a low side of charges.



If you use one of the online companies, e.g. E-super it's less, I think.
And, Happy, you wouldn't be starting a SMSF with $16,000 in it!




Happy said:


> I can say that too, as Self-Super is prohibitively expensive for your first job and *first pay*.



I've never thought it was designed for someone in first job, but for older people who have reasonable asset base and retirement targets.


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## Kash Kosmo (8 October 2009)

This is my current sphere of interest - SMSF
And the main reason I joined the ASF forum 

2 main gripes of the retail super funds are
Fees charged as a % by the super funds & the broker (if you have one)
Flexibility and control of your deposits 

I will be speaking with my accountant about starting a SMSF 
I also found an online SMSF  e super-fund that charges a flat rate annual fee for compliance (unless some hidden charges are added as extras?)

http://www.esuperfund.com.au/?gclid=CNSjtZX66ZYCFQ0xawodVReYPQ

Does anybody have any views on these 2 options 
Accountant or on-line provider 

KK


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## Sir Osisofliver (8 October 2009)

*Feel free to dismantle*


*Cracks Knuckles and begins to dismantle*

*"Firstly, my goal was always to remove myself from the claws of a fund manager as soon as possible,"*

1) If your goal was remove yourself from the claws of a fund manager...why did you give him more to get his claws into? What you have done is put money into a vehicle that you have no hope of withdrawing for the next 40 years or so. 

In relation to that...[begin rant mode now]

 Are you aware that the government has under consideration the MANDATORY regulation for all superannuation funds (including SMSF's) that 25% of the fund is to be held in the form of an ANNUITY.  Yes that is right an annuity - the worst investment vehicle EVER.  Where they take your money and give you little bits of of back until there is nothing left, just the smell of money that used to be there and a self satisfied smirk on an advisers face as he smokes another cuban. Yes we live in a nanny state that demands that we cannot draw all our super out, have a blow-out holiday around the world and then rely upon the public purse in our dotage to look after us. Of course the Govmint is being advised by "industry participants" and you know you can trust those guys to have *your* best interests at heart /sarcasm.  

What you seem to have forgotten is that even IF your money is ostensibly under your control it is still subject to our glorious leaders desire to stick a dummy in our mouth. It is with 100% confidence that I will say that you will experience some significant changes in legislation that you will NOT like before you can access the money that you have locked away.  I mean c'mon Largesse I need you to support me in the manner in which I have become accustomed when I've spent my fortune on hookers and booze and need someone to change my adult diaper. You want to do that right? [end rant mode]

*Secondly, I looked at as a good incentive for me to save as a youngin'.*

Get a piggy bank instead. No seriously GET A PIGGY BANK. You can't use that money to make money until it's under your control and there is no getting those lost years of control back.  Welcome to the sting in the tail of compounding, one one of the most important rules of investment. ONCE INVESTED LEAVE IT THE HELL ALONE.

Compounding - Of course with any type of compounding the longer you leave it in place the greater the compounding effect.  You have just cost yourself three years. In the following compounding numbers...remove the last three digits.

1,
2,
4,
8,
16,
32,
64,
124,
248,
512,
1024,
2048,
4096,
8192,
16384,
32768,
65536,
131072,
262144,
524288,
1048576,
2097152,
4194304,
8388608,
16777216,
33554432,
67108864,
134217728,
*268435456,
536870912,
1073741824,*

nasty Eh?

*Thirdly, I received the tax benefits by salary sacrificing now.*

4) Really huh fancy that a tax benefit.  Hello tax benefit why do you look suspiciously like a carrot and who is your large woody friend?  If they have to SELL you into a product Largesse do you really think it's a good idea?  I mean compared to the tax benefit of say tax deductible interest payments and franking credits how good is it?  The answer is that it looks great in the short term, and *really badly value destroying *in the long term.

*Fourthly, after I reach SMSF stage, I will have full control over a portfolio that is no longer subject to personal income tax and CGT.*

Points to the bit below point one above. Chuckles at the thought that the guvmint will keep things the same until you retire. Chuckles again..other peoples foolishness is amusing sometimes.

Largesse -if you know what you are doing you can limit your taxable income to 30 cents in the dollar....no matter how high your income is. Tell me that the 15% difference when you cannot compound for 40 years, or the no tax effect of pension phase makes all the difference. I need another laugh.

*I hope to be able to compensate for the lack of direct leverage by investing in companies that were geared themselves.*

Good Luck Largesse

Dismantle complete..I'm gonna go smoke a Cuban.

Cheers

Sir O


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## Largesse (8 October 2009)

Points noted but using a 100% compounding example is a tad over the top.

Also, you've failed to acknowledge the effect of the co-contribution on your highly exaggerated compounding scenario.
I put in a grand, kev gave me another 1500 on top of that. So when i salary sacrifice 10k, i get 11.5k (and thus a bigger base to compound off) and in the short term i also get a tax benefit of approx 1700 which i can also use to reinvest or spend on coke and hookers (the utility i derive from 1700 as a 23 year old is quite high as well).

And soon as i get to SMSF stage, i can do what you said and invest and leave it there to compound, in a low tax environment.

instead of copping the potential CGT changes which have been suggested by the Henry report


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## Sir Osisofliver (8 October 2009)

Largesse said:


> Points noted but using a 100% compounding example is a tad over the top.




But it *is* the easiest way I can show the effect of reducing three years of compounding benefits. It is of course just an example to show the principle.



> Also, you've failed to acknowledge the effect of the co-contribution on your highly exaggerated compounding scenario.
> I put in a grand, kev gave me another 1500 on top of that. So when i salary sacrifice 10k, i get 11.5k (and thus a bigger base to compound off) and in the short term i also get a tax benefit of approx 1700 which i can also use to reinvest or spend on coke and hookers (the utility i derive from 1700 as a 23 year old is quite high as well).



That's because co-contribution is a bribe...and i don't take bribes. If you'd taken that ten grand and matched it with 10 grand of margin lending and invested where I had invested you would now have a profit of$9,000 which is slightly better than the $1,500 that Kev was kind enough to bribe you with. Then I can go away and compound on my compound and draw another $4,500 to bring my LVR back to 50% and watch that compound. In another six months I get to draw on the increase in my initial investment, and additional investment and compound on my compound on my compound and make your numbers look *extra special bad*. After a few more years I get to draw on the accumulated equity and have enough for a deposit on an investment property where I can leverage 90% of the investment. I then get to do this for forty years while you do not have the ability to do so until *you get control* (and highly unlikely to make property investments inside a SMSF thereby cutting out an asset class and the diversification implied). You've handed a padlock on that money to someone else.



> And soon as i get to SMSF stage, i can do what you said and invest and leave it there to compound, in a low tax environment.




And hope to blazes that the Government doesn't impose some legislation that royally rogers your plan to keep us baby boomers and X generation from dying in the street. Don't be dissapointed when things don't go to plan in an instrument over which you have limited control. 







> instead of copping the potential CGT changes which have been suggested by the Henry report




Don't get me started on Ken Henry, I'd cheerfully like to "educate" the fellow with a brick. 

CGT may be going up under his recommendation (_if you sell_) but what's happening with company tax rates?  Does that give you ideas Largesse about how you can restrict your marginal tax rate?

Cheers

Sir O


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## mattlaw (8 October 2009)

Largesse said:


> Points noted but using a 100% compounding example is a tad over the top.
> 
> Also, you've failed to acknowledge the effect of the co-contribution on your highly exaggerated compounding scenario.
> I put in a grand, kev gave me another 1500 on top of that. So when i salary sacrifice 10k, i get 11.5k (and thus a bigger base to compound off) and in the short term i also get a tax benefit of approx 1700 which i can also use to reinvest or spend on coke and hookers (the utility i derive from 1700 as a 23 year old is quite high as well).
> ...


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## Julia (9 October 2009)

Sir O, your views re super are well known and you make some good points re the disadvantages of locking money away when one is young.

But, given that Super is compulsory, I'd opt every time for a self managed fund rather than pay some Fund Manager who fails to do better than the Index.


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## Sir Osisofliver (9 October 2009)

Julia said:


> Sir O, your views re super are well known and you make some good points re the disadvantages of locking money away when one is young.
> 
> But, given that Super is compulsory, I'd opt every time for a self managed fund rather than pay some Fund Manager who fails to do better than the Index.




And I 100% agree with you.  Since it's mandatory go SMSF...but don't be silly enough to think it's a great investment vehicle and put *more* in.

Oh and when you hit Transition to Retirement Age...take out your maximums.

Cheers

Sir O


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## Julia (9 October 2009)

Sir Osisofliver said:


> And I 100% agree with you.  Since it's mandatory go SMSF...but don't be silly enough to think it's a great investment vehicle and put *more* in.
> 
> Oh and when you hit Transition to Retirement Age...take out your maximums.
> 
> ...



Well, once in pension phase there's no tax at all, so it's better to have the funds within the allocated pension than outside of it where you'd be paying tax.
Curious as to why you don't comment on this.


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## YELNATS (9 October 2009)

Happy said:


> I can say that too, as Self-Super is prohibitively expensive for your first job and *first pay*.





Julia said:


> I've never thought it was designed for someone in first job, but for older people who have reasonable asset base and retirement targets.




Totally agree with both points, a SMSF is the most valuable later in your working life, especially when you're able to move to a transition to retirement pension component, as part of your SMSF (ie. from 55 years).


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## Happy (9 October 2009)

YELNATS said:


> Totally agree with both points, a SMSF is the most valuable later in your working life, especially when you're able to move to a transition to retirement pension component, as part of your SMSF (ie. from 55 years).





It is like you get lower percentage interest rate on smaller term deposit and higher on larger, fantastic for rich people to get richer.


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## Sir Osisofliver (9 October 2009)

Julia said:


> Well, once in pension phase there's no tax at all, so it's better to have the funds within the allocated pension than outside of it where you'd be paying tax.
> Curious as to why you don't comment on this.




Julia it's a generalisation that I make.  It doesn't apply to everyone because it is dependant upon the amount of funds held within that entity and the skill level of the person involved.

Someone with the appropriate skills may be able to invest the funds in the SMSF once in pension phase that more than makes up the level of drawing through TTR or normal pension.  In those circumstances it is much better to have the funds in a nil tax environment - because the funds are still a large income producing asset that is growing at faster than the inflation rate.

It's been my experience however that as people age they become more risk averse and wish to have a guaranteed income stream in their later years and so tend to favour products that produce a guaranteed level of income. The overwhelming proportion of clients in that age bracket do not have the skills, time or inclination to use the tax free nature of the entity to it's full effect.  They want to place all the money into cash products and spend time working on their golf swing - and since they've worked their whole lives for the money who can blame them eh?

The unfortunate side effect of this is that many financial advisors use terrible products (like an annuity or certain debt based products) to achieve these guarantees for clients which ends up being significantly value destroying over the longer term. There are easier ways of investing into income producing assets that do not result in a) a level of return below inflation and b) provide a sufficient income but to get appropriate diversification into direct asset classes generally means investing directly into property (which is bloody hard to do inside a super fund if there is not enough cash).

Does that answer your question?

Cheers

Sir O


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## Julia (9 October 2009)

Sir Osisofliver said:


> Does that answer your question?
> 
> Cheers
> 
> Sir O



Yes, thanks, Sir O.  And I've observed just the behaviour you describe.
Pity, huh.
Cheers
Julia


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## awg (9 October 2009)

Kash Kosmo said:


> This is my current sphere of interest - SMSF
> And the main reason I joined the ASF forum
> 
> 2 main gripes of the retail super funds are
> ...




Hi KK,

that was me 2 yrs ago

lots of informative posts from everyone,

fwiw, I have adopted the approach of the low cost efund you mentioned, and also discuss some matters with my personal accountant, for which I pay an hourly fee.

Having good accountancy advice can save on expensive mistakes, if you find one who is good & experienced, in the field of SMSF,tax, and general investment, well worth it.

Legislative risk is a real scare now for younger persons with talk of 67yr access, and other imo, regressive ideas, has made me need to re-evaluate strategy in regards my partners super vs other investments.

You can leverage yr investments in SMSF via CFD, warrant or option if yr deeds allow ( for the present anyway)...or just highly leveraged listed equities

If over 55, pension phase, very low tax, compounding, is hard to beat, in theory.

In practice, if you go alone, it means that you have to:

*have, or acquire investment management skills
*design and implement a plan
*take full responsibility for monitoring and re-evaluating

either that or pay someone a fee to make investment decisions on your behalf, or in conjunction with you, such as a financial planner.

good luck


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