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SMSFs: Are they right for you?

Article By | | Accounting & Tax

SMSFs are a popular investment vehicle for retirement. Australian Tax Office (ATO) figures reveal that as at 30 June 2019, there were 599,678 SMSFs in Australia with total estimated assets of $748 billion. There is plenty to love about them – investment control and flexibility, estate planning, effective tax management, costs, etc.

However, ASIC’s fact sheet aims to inform investors about the risks and responsibilities that come with having a SMSF and we explore some of these in more detail below:

Balances under $500K

ASIC have cautioned that fund balances under $500K have lower returns after expenses and tax. This appears to be quite subjective as returns would depend on the nature of the investment, keeping in mind that past returns are not indicative of future performances. ASIC acknowledges that “care must be taken when using SMSF performance figures, particularly when making comparisons” – while they have used APRA’s methodology to estimate SMSF performance, the data is not the same. You need to ensure that you are comparing apples with apples, not apples with oranges. The decision to establish a SMSF is best made after consulting with your financial adviser who is best placed to determine their suitability for you after considering your own unique circumstances.

It takes over 100 hours a year to run a SMSF

If you are the sort of a person who likes to take charge and be actively engaged in achieving your retirement goals; that takes time and effort. If we break down the figures, 100 hours a year equates to around 2 hours a week over 52 weeks, which does not seem to be an unreasonable amount of time to spend on yourself to fund your own retirement. Spending time on yourself to achieve financial freedom is a form of self-care and does not need to be viewed negatively. Remember, you will also have help from your accountant and financial adviser to assist you with your duties and responsibilities.

The average cost of running a SMSF is $13,900 a year

While it is unclear how ASIC has arrived at this figure, it appears to be an average. The issue with averages is that you are comparing fund balances of ranging from say $1M to $50M – the higher balance funds can cost more, depending on what’s involved in the fund, which makes the whole comparison exercise very skewed. The APRA funds also have fees and charges. Again, you need to compare apples with apples.

You could face fines or end up in court if assets are misused

This is quite clear cut. Using the SMSF assets for personal use is a breach of the superannuation legislation as the sole purpose of the SMSF is to provide for your retirement. If you believe you might require the funds before your retirement, you are best placed to contact your financial adviser.

ASIC are right, the buck does stop with you as the trustee of your SMSF. Remember, you can avail of assistance via your accountant and financial adviser, if you wish to go down the SMSF path. Should you wish to explore this opportunity further, please contact your Altitude adviser today.