Self Managed Super

[So_Cynical]

I don't know of anyone who would set up a SMSF with such a small sum as $140K. It's usually suggested a minimum is $300K. The average fund value is around $900K.

In most instances, the costs don't increase as the value of the fund increases, so it's actually very cost effective.

I pay just $2000 p.a. for annual tax return and audit and all ongoing discussions with my accountant throughout the year. I think that's very reasonable for the service and professionalism I get.

I found a recent and interesting write up on the statistics..ill quote a little and link.

The average member balance inside SMSFs is $456,000, more than 18 times the average non-SMSF member’s balance of approximately $25,000....The common wisdom, based on the level of costs associated with running an SMSF, has been that $200,000 should be the minimum balance to set up a fund....The average cost of running an SMSF has declined by 20% between 2006 and 2008 – from 0.86% of the average balance to 0.69% – while the average for all super funds is about 1.2%. However, in dollar terms, the average operating expense cost rose from $5500 to $6500 over the same period.

http://www.investors.asn.au/bulletins/smsf/2010/02/smsf-statistical-analysis/default.asp

 

[harks11]

The problem is very specific to CORPORATE TRUSTEES, as opposed to trustee in personal names.

You ( Harks or others, should fully research the pros and cons)

No-one ever mentioned I would run into the problem

That is, if PTY LTD is in the Trustee name ( which it is for Corporate Trustees, but not other SMSFs), the banks and other financial institutions will not give you the same rate as ordinary SMSFs or personal accounts.

ANZ V2 is especially bad, their attitude was so arrogant and rude and downright hopeless, I withdrew over $400k in protest. AVOID!

Others that will not give the same rate include CBA, WBC, ANZ, AMP, various building societies.

St George and Rabo will.

Thanks awg, spent the rest of the day yesterday checking. There still is a powerful argument out there for a corporate trustee even with the extra cost. However, it a key play to get access to the higher rates. I going to talk to a couple of banks tomorrow and see if there has been any movement. As you say there is a couple that already give the good rates but not all.

 

[poverty]

Sorry to butt in on this interesting thread but just a quick n00b question, all these costs and fees for a SMSF; do they need to be paid out of your super itself or can they claimed as a tax-deduction from your taxable income?

 

[Judd]

Before making a decision on whether or not to go down the Corporate Trustee route, put aside the question of accessing a higher rate on terms deposits.

Think at the broader level. Does the SMSF have more than one member? If so, what issues are involved if one member dies, eg share transfer to another name and the possible costs involved. With corporate trustee and change of director(s) is reasonably simple and the assets are already held by the corporate trustee as authorised trustee.

Do members have a separate wills involving discretionary trusts or a beneficiary testamentary trust and/or own real property or other assets in their own individual names or under joint tenant arrangements? As a corporate trustee can act as trustee of multiple trusts, this may be a factor in your decision.

If you think about it, depending on your circumstances, the fact that you may not get a higher rate for term deposits is only one issue and may not necessarily be the most important one.

Poverty, generally it is a set up cost to the SMSF and it is cleaner for the SMSF to pay but if you have not exceeded the concessional (tax deductible) or non-concessional contribution limits you can fund the set up costs but they are not deductible against your personal income.

 

[Julia]

I found a recent and interesting write up on the statistics..ill quote a little and link.

That article says the "average member balance is $456K". That doesn't necessarily denote the value of the Fund which may have several members.

The quote that operating expenses are $6500 is just crazy as far as I'm concerned. This must be for people who are paying for 'specialist advisers' to do all the paperwork, and heaven knows what else.
There's no reason an average person can't keep perfectly adequate records themselves.

As I said earlier I pay $2000 p.a. to my accountant for tax return and audit, plus all ongoing contact throughout the year. Only other expense is the ASIC levy of I think around $100 p.a. and brokerage. That's way less than $6500 all up.

The following might offer some clarification for you:

Home > DIY super
Do you fit the profile of a ‘typical’ SMSF trustee?

By Trish Power on June 10, 2010

XHello there! If you are new to SuperGuide, you might want to subscribe to our newsletter for tips and all the latest information on superannuation.
You were searching for "Average SMSF balance in Australia". See posts relating to your search »
Note: Every three months or so, we update this article with the latest data on self-managed superannuation funds (SMSFs) issued by the Australian Taxation Office. This article contains the latest data available as at 10 June 2010. The most significant trend evident in the latest statistics is that the average SMSF balance is steadily heading towards $1 million. We expect the ATO to release further data at the end of September 2010.

The latest ATO statistics on SMSFs (representing SMSF activity up to the end of March 2010) highlight some interesting observations that can be made about the current batch of SMSF trustees.

Although attempting to slot more than 800,000 trustees running more than 422,000 SMSFs into a box called ‘typical’ is an impossible task, the statistics do shed some light on the average SMSF balance, the ages of SMSF trustees, state of origin, gender balance and income levels.

Average is not always typical
According to the latest data available, the average SMSF balance is around $946,000, which means that the superannuation industry is grappling with 400,000-plus SMSFs with close to $1 million each to invest, on average. Another significant trend is that the number of Australians setting up SMSFs is not stalling as predicted by many in the super industry, although the rate of new funds has dipped from the record levels experienced in 2008 and 2009.

The average fund balance however doesn’t necessarily represent a typical SMSF. Here’s a few interesting statistics:

More than a quarter of all SMSFs have $200,000 or less in assets, with nearly 10% of SMSFs holding less than $50,000 in assets.
Another quarter of all SMSFs have between $200,000 and $500,000 in fund assets
Nearly a quarter of SMSFs hold between $500,000 and $1 million in assets.
The remaining quarter (26.45%) have more than $1 million in fund assets with 10% of those SMSFs holding more than $2 million in assets.
The size of a SMSF can also be influenced by the number of fund members – presumably, the more members a SMSF has, the more likely the fund balance will be larger. For the record, two-thirds of SMSFs have two members, nearly a quarter are single-member SMSFs and just under 10% of SMSFs have three or four members.

 

[hmmm]

I don't know of anyone who would set up a SMSF with such a small sum as $140K. It's usually suggested a minimum is $300K.
The average fund value is around $900K.

In most instances, the costs don't increase as the value of the fund increases, so it's actually very cost effective.

I pay just $2000 p.a. for annual tax return and audit and all ongoing discussions with my accountant throughout the year. I think that's very reasonable for the service and professionalism I get.

But what about SMSF's with multiple members? it would be very feasible to set up a SMSF with less than $140k each if there were two people sharing the bill, even more so at 4 people.

 

[hmmm]

Don't be afraid, either, to approach a bank you already have an account with to ask if they will offer what a competitor is offering. I have a term deposit with SUN at 8% simply because I asked if they'd pay that.

Great information there, when i worked at westpac i know my branch manager was more than happy to exercise to his (very much kept on the down-low by westpac) limit on increased interest rates for savings accounts and he strongly advocated for the customer to his regional manager to get more if he thought it was necessary. They are also very keen to match interest rates (especially against NAB) as this is one of their key drives towards getting $2 of deposits for every $1 of borrowing.

 

[harks11]

After considering all the facts (that I have). I am going to proceed with the Corporate structure. Might have to fight with fewer banks but all in all it stacks up. An extra 700 to set up but that pales into insignificance on what I am paying now. I reckon the best part of 16-20k. The future freedom and flexibility are clear

The interest rate is a consideration (thanks awg and Julia). I have sent a few emails and will do a couple of visits to banks this week.

Going to also explore using the working account with St george, ubank or rabo. It would be nice to have a working account with high interest... we will see. It would save a lot of movement.

Small company admin with owner having 15 years experience in tall building in the city working on super.

... stay tuned for next episode.

 

[Julia]

But what about SMSF's with multiple members? it would be very feasible to set up a SMSF with less than $140k each if there were two people sharing the bill, even more so at 4 people.

Yes, but we were discussing value of FUNDS, not individual contributions.
I was replying to the scenario put up by So Cynical where he quoted costs on a Fund value of $140K.

If you were going to have four individuals each with their own contributions, the complications would be immense. What would happen if two people want to sell a share and the other two don't? And countless other similar situations.

You would need a very carefully constructed Trust Deed if you were going to do something like this. I wouldn't touch it under any circumstances.

 

[hmmm]

Yes, but we were discussing value of FUNDS, not individual contributions.
I was replying to the scenario put up by So Cynical where he quoted costs on a Fund value of $140K.

If you were going to have four individuals each with their own contributions, the complications would be immense. What would happen if two people want to sell a share and the other two don't? And countless other similar situations.

You would need a very carefully constructed Trust Deed if you were going to do something like this. I wouldn't touch it under any circumstances.

Mmmm, very true!!! i never thought about the complications in agreements to buy/sell etc... wow the disputes could be endless.

Lucky when ever my dad and i come to a decision on our fund it's a no brainer as to who's decision will reign supreme ... [*thinks* one day i'll make an investment contribution}

 

[gooner]

Yes, but we were discussing value of FUNDS, not individual contributions.
I was replying to the scenario put up by So Cynical where he quoted costs on a Fund value of $140K.

If you were going to have four individuals each with their own contributions, the complications would be immense. What would happen if two people want to sell a share and the other two don't? And countless other similar situations.

You would need a very carefully constructed Trust Deed if you were going to do something like this. I wouldn't touch it under any circumstances.

Julia,

I have a SMSF with two members - myself and and my wife. I thought about adding my young children but you can only have a maximum of four members and the child left out would have been mighty annoyed when older.....

My wife and myself are trustees and so both sign off on decisions of the fund. In reality, she rubber stamps my decisions. If we both had opposing views on whether to be in cash or shares, then I agree this could be difficult to manage, so it is important to consider who will be in your fund - reality is that it would be unusual to have anything except spouses/children in the one fund.

esuperfund charge $699 (just went up apparently) for a SMSF irrespective of the number of members, so they will give you all the member statements, do the tax etc for $699 a year. Plus the ATO levey of $150 and that is $849 a year. So on a fund of $140k that is 0.6% much less than you would pay in a retail fund. The introduction of low costs providers means that SMSF can be cost effective on quite low amounts of super - even at $85,000, the fee only works out at 1%. I have no other costs apart from a small amount of my time.

 

[hmmm]

Julia,

I have a SMSF with two members - myself and and my wife. I thought about adding my young children but you can only have a maximum of four members and the child left out would have been mighty annoyed when older.....

Just wondering if there isn't any reason why you can't be a trustee on two superfunds in general?? you don't have to be a member of the second fund. could you mirror the first fund to the second? sure it would create double the paperwork and double the time/effort, but that might accommodate for the additional dependents.

 

[Julia]

Julia,

I have a SMSF with two members - myself and and my wife. I thought about adding my young children but you can only have a maximum of four members and the child left out would have been mighty annoyed when older.....

My wife and myself are trustees and so both sign off on decisions of the fund. In reality, she rubber stamps my decisions.

gooner, I'd imagine this is what happens in most SMSF's. I have a Power of Attorney for my co-Trustee so sign wherever her signature is required as well as my own. She only signs the Tax Return.

esuperfund charge $699 (just went up apparently) for a SMSF irrespective of the number of members, so they will give you all the member statements, do the tax etc for $699 a year. Plus the ATO levey of $150 and that is $849 a year. So on a fund of $140k that is 0.6% much less than you would pay in a retail fund. The introduction of low costs providers means that SMSF can be cost effective on quite low amounts of super - even at $85,000, the fee only works out at 1%. I have no other costs apart from a small amount of my time.

Yep, obviously esuperfund provides a very economical service. I have nothing against them. I just like having an accountant - prefer the personal contact, and he's also there to bounce off stuff relating to estate planning or anything else. So I'm paying a bit more than double charged by esuperfund, and given what a small percentage it is of the fund, I'm more than happy to do that.

Just wondering if there isn't any reason why you can't be a trustee on two superfunds in general?? you don't have to be a member of the second fund. could you mirror the first fund to the second? sure it would create double the paperwork and double the time/effort, but that might accommodate for the additional dependents.

Hmmm, maybe have a read up of the rules relating to SMSF's.
All members must be Trustees and all Trustees must be members.

 

[pixel]

Hmmm, maybe have a read up of the rules relating to SMSF's.
All members must be Trustees and all Trustees must be members.

Are you sure about that, Julia?
My wife and I are Trustees, but she is not a member in the sense that her Super hasn't been rolled into it; only mine.

 

[Julia]

Are you sure about that, Julia?
My wife and I are Trustees, but she is not a member in the sense that her Super hasn't been rolled into it; only mine.

If you check your Trust Deed, you'll probably find that she is recognised as a member as well as a trustee.

Yes, I'm sure. If you Google "Do all Members of SMSF's also need to be Trustees" you will get dozens of references.
Here is an extract from the first one I came to:

For a start, you need four or less members. Members of the fund also have to be trustees of the fund. Trustees of the fund have to be members of the fund. Each member is forced to participate in the decision making process of your fund. To protect all members of your fund, no member can be the employee of another member. The only exception is members who are “related”.

I don't think what funds have or have not been rolled into the SMSF have much to do with it, but someone else may be able to clarify this.
Is the Fund in both your names?

 

[hmmm]

Hmmm, maybe have a read up of the rules relating to SMSF's.
All members must be Trustees and all Trustees must be members.

Yes still reading up on it but legislation requires that there be two trustees for a single member superfund. so does that mean that trustees dont have to be members? i can't seem to find anywhere that covers multiple funds i guess i need to look harder... (Makes coffee, slices cake, gets comfortable...)

 

[pixel]

I don't think what funds have or have not been rolled into the SMSF have much to do with it, but someone else may be able to clarify this.
Is the Fund in both your names?

The fund is in both trustees' names, yes. But it's also classified as a "single member fund", from which only I can draw payouts. You will find that there is a special clause for single-member funds as far as trustees are concerned:

Setting up a self-managed super fund

Single member funds
It’s possible for you to set up your fund with only one member. If you have a corporate trustee for a single member fund, the member needs to be one of the following:
■ the sole director of the trustee company
■ one of only two directors, that is either
– related to the other director
– not an employee of the other director.
You can also have two individual trustees. One trustee needs to be the member and the other needs to be one of the following:
■ a person related to the member
■ any other person who does not employ them.
A trustee or director can’t be paid for their services as a trustee or director in relation to the fund.

 

[Julia]

OK,Pixel. There seem to be various contradictory bits of advice around.
I just dug out my Trust Deed to see if that makes it clearer, looked at all the legalese in the 30 or so pages and put it back again.

The following is from the ATO:

ATO regulated fund types
ATO Regulated Self-Managed Superannuation Fund (SMSF)

The Tax Office only regulates Self-Managed Superannuation Funds (SMSFs).
In general, an SMSF (other than a single member fund), is one where:
there are 4 or fewer members
all members are trustees or directors of the trustee company
there are no trustees or directors who are not members
there are no members who are employees of other members (unless they are relatives)
no trustee of the fund receives any remuneration for their services as trustee.
A single member fund with a corporate trustee is an SMSF if:
no trustee of the fund receives any remuneration for their services as trustee
the member is:
the sole director of the company
one of only two directors where the other director is a relative, or
one of only two directors and not an employee of the other director.
A single member fund without a corporate trustee is an SMSF if:
no trustee of the fund receives any remuneration for their services as trustee, and
the member is one of only two individual trustees and the other trustee is:
a relative, or
not an employee of the other trustee.

I'm not sure that the above actually makes anything any clearer.

 

[gooner]

Just wondering if there isn't any reason why you can't be a trustee on two superfunds in general?? you don't have to be a member of the second fund. could you mirror the first fund to the second? sure it would create double the paperwork and double the time/effort, but that might accommodate for the additional dependents.

You can be a member but have a nil balance. And you can be a member and trustee of multiple SMSF's if you like, but that means multiple fees, so seems to be little value in doing that.

 

[harks11]

Project is coming along nicely. Got the legals underway and waiting for some paper work to come back.

Now about brokers and banks. the home account is with Westpac, so as a default that would be easy. But doing a comparison is a little tricky. There are a couple of low cost companies around like IB and Belldirect. But again there is some advantage of having the trader with a bank account, makes easy transfers.

Any experience on the strengths and weaknesses and who to just stay away from. Who has the best free or cheap extras