7 Oct 2011 | Superannuation
There are many reasons apart from cost savings that people set up self managed super funds. Being in control of your own financial destiny, not having to deal with a slow moving bureaucracy, and having direct investments in a super fund, are three of the other major reasons.
Q. Is it possible to set up a Self Managed Super Fund, so I can reduce the management costs I currently pay, and shift the money I have in my current super fund even after retirement? If so what is involved in setting up an SMSF?
A. An SMSF can be set up at any time, and funds held in another superannuation fund rolled into the SMSF, no matter what the age or retirement status of the member. The main restriction relating to superannuation applies to a member’s age and their ability to make further concessional or non-concessional contributions. Once a person turns 65 they must pass the work test to make further super contributions.
To set up your own SMSF you will either need to have another person join the fund as a member and trustee, or you will need to incorporate a company that will be the trustee of the fund with you acting as the sole director shareholder. You will then need to have a superannuation trust deed drawn up.
Costs for drawing up a superannuation fund trust deed can vary widely, from as little as $110 up to over $1000 depending on who you use. It therefore pays to shop around and make sure you are not paying too much.
After the deed has been finalised and signed you must then apply for an ABN and tax file number for the fund. Then the SMSF’s bank account must be set up to receive the funds from your existing super fund as a rollover and any new contributions. As a part of this process you should find an accountant that specialises in self managed super funds to assist you with the process.
Q. I intend to set up my sole trustee SMSF and purchase a residential property as part of my diversified asset allocation within the fund. This property will be paid for in full. As a fund in pension phase pays no tax is it still entitled to the normal depreciation and other tax deductions associated with the costs of owning a rental property? Also once in pension phase the super fund’s assets are valued each year. Valuing shares, bonds and cash on a specific date is relatively simple. But how do I value a rental property for this purpose?
A. You are right that a super fund in pension phase pays no tax. This however does not alter how income and expenses are treated for tax purposes. The super fund can still decrease the rent it receives by all allowable deductions such as depreciation, agent’s fees, rates etc. Once the net taxable rent has been calculated no tax is paid by the super fund if it is in pension phase.
The investments in a self managed super fund that can be easily valued each year, such as shares and managed investments, should be shown at their market value on an annual basis. For investments such as property and art works the tax office allows the trustees of the fund to value these assets once every three years.
Trustees can obtain valuations for investments such as property from qualified valuers, suitably experienced real estate agents, or calculate the value themselves as long as they can support the valuation with appropriate data and information.
Questions can be emailed to email@example.com
Max Newnham’s book, Funding your Retirement – A survival Guide, is available in book stores and as an eBook.