Make Sure You Consider These Things When Setting Up Your SMSF

Dominique Grubisa Dominique Grubisa

SMSF Setup isn’t as complicated as you may think. However, there are several things to keep in mind when you create yours. DG Wealth Management’s digs into the most important things to get right in this article.

Self-managed superannuation funds (SMSF) give you direct control over the money in your super. This opens up a range of investment options that you may not have had access to before.

However, many people view SMSFs as complex financial vehicles. As a result, they never explore the possibilities on offer.

In this article, we examine the benefits of SMSFs and a few of the things you need to keep in mind when you create one.

Who Should Consider Setting Up an SMSF?

A 2018 article for Australian Financial Review points to SMSFs as a fast-growing financial vehicle. It notes that 60,000 people create an SMSF every year. And at the time of writing, more than 1 million Australians had one.

That means they must know something those with regular superannuation funds don’t… 

However, the article is also quick to point out that they’re not for everyone:

“If you’re disorganised with your paperwork, it may not be for you. Likewise, if you don’t enjoy or lack the time to actively manage your finances.”

In other words, you and your SMSF trustees are ultimately responsible for what happens with the fund. That means you need to stay on top of your legal obligations and ensure compliance at all times.

But let’s say that you’re prepared to take on that burden. What benefits can you expect when you create an SMSF structure?

  • SMSF investing gives you more control over your investment decisions than other types of superannuation.
  • There are a host of retirement benefits on offer for the members of an SMSF. This is particularly the case with both income tax and Capital Gains Tax (CGT). SMSFs allow you to accumulate assets, such as direct shares and property, in a concessionally taxed environment. Earnings are taxed at 15%, and CGT is only taxed at 10% if you retain the asset in the SMSF for at least 12 months.
  • SMSFs aren’t just for the wealthy. They’re for anybody who aspires to generate wealth. In his article, Tim Mackay notes that “70 percent of SMSF members have a taxable income of less than $100,000.”

Of course, there are a lot of things to consider when you set up your SMSF. That’s why it’s always a good idea to get financial advice before moving ahead. But if you’re still in the planning stages, here are six things to keep in mind:

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Consideration #1 – Your Own Risk Tolerance

Never set up an SMSF without a clearly documented investment strategy. This strategy must outline the types of investments the fund will make based on your risk profile. It will also outline your liquidity requirements and your plans for diversification.

Many new SMSF trustees leave a lot of the work in the hands of their financial advisors. This is a mistake, because the responsibility of running the fund always falls ultimately to the Trustee. If there are issues, the ATO will not accept that you’ve delegated the work to a financial planner. 

This isn’t to say you shouldn’t involve a professional advisor. Typically, you’ll consult advisors on an “as needed” basis. They’ll provide guidance without assuming responsibility for the SMSF. Ultimately, it’s up to the trustee to determine what level of involvement is required from the advisor.

Consideration #2 – Property May be an Attractive Investment

There is potential to operate a property business using an SMSF. However, it’s crucial to seek professional advice should you choose to go down this route.

Your advisor will be able to tell you about regulatory changes and clarifications that affect your strategy. For example, the ATO recently clarified its position on renovations and improvements when a property has been purchased with a Limited Recourse Borrowing Arrangement (this is a special form of loan used to borrow in superannuation). 

It says that you may not use borrowed money to renovate or improve the property. However, you may use available funds as long as you don’t change the character of the property.

It’s possible that you will miss such important distinctions if you try to go it alone. The key to success when using an SMSF to invest in property is to work with people who understand how the process works.

Consideration #3 – SMSFs are a Potential Property Investment Vehicle

Once you’ve set your SMSF up, you have to start thinking about the types of investment you want to make.

Generally, SMSFs have been a vehicle of choice for self-directed investors, particularly SMSF Trustees who have engaged with retirement savings by investing in asset classes they’re familiar with. Such asset classes include commercial property and residential property, in a concessional tax environment.

Remember however, the goal here is to minimise risk so that the fund reaches its maximum potential. As a result, it may make sense to consider investing in other classes. Whilst it may feel uncomfortable investing in assets you’re not familiar with, you will benefit by not exposing the fund to a single asset or asset class. The risk is that it could affect your profits. If you are unfamiliar with the other asset classes, you’ll need to undertake appropriate research or consult a professional advisor

Nothing is going to be comfortable all the time. Investing in property could still be high risk if the property market goes down.

Just because something is unfamiliar right now doesn’t mean you can’t learn about it and get a good result from it.

Consideration #4 – Accessing the Key Tax Benefits

As mentioned above, there are a number of key tax benefits you can access via an SMSF.

The key here is that your SMSF is a tool to help you enjoy a more comfortable retirement. It’s crucial to consult suitable professional advisors to understand how to maximise it.

Consideration #5 – It May be Difficult to Borrow Money

It’s possible to borrow money via an SMSF through a Limited Recourse Borrowing Arrangement (LRBA).

The issue here is that the major banks no longer offer LRBAs. LRBAs are not typical full recourse loans. Post Royal Commission, the banks have chosen to simplify their models.

That means it’s not as easy to invest via an SMSF as it is to do it in your own name. For example, buying on a limited recourse basis exposes you to higher interest rates. Plus, you’ll typically have to pay a minimum deposit of 20%.

However, there are a few lenders who offer access to LRBAs. The key here is to act quickly, as increasingly stringent lending criteria may whittle away at that small list.

Consideration #6 – Plan for Diversification Later

You may choose to focus on property investment when you set up your fund. However, it pays to consider how you’ll diversify. This diversification allows you to run the fund more efficiently and can lead to higher profits. 

There’s another reason it’s a good idea to diversify – if you don’t, you’ll have to justify yourself to the ATO. The ATO has recently written to over 19,000 trustees who hold 90% or more of fund assets in property asking them to present a copy of their investment strategy. We suggest you consult an adviser to properly achieve this.

Your goal is to find the assets that will outperform the market. Again, this is where getting advice from a suitable professional becomes beneficial.

Create Your SMSF Today

There are many benefits to creating an SMSF, particularly in regards to your retirement. SMSFs are a vehicle of choice for property investors who are attracted to the flexibility of using their retirement savings to invest in residential and/or commercial property in a concessionally taxed environment.

But as we discussed in this article, there are several considerations to keep in mind before you move ahead. It’s crucial to get the right advice so that your SMSF performs well and meets all the legal requirements.

That’s where DG Institute comes in.

We’re able to help you leverage your SMSF so that you can maximise your income from it. But to do that, we need to understand where you are now so we can offer the right SMSF advice for your situation.

Get your free assessment today to find out if setting up an SMSF is right for you.

Good Debt Vs Bad Debt With Dominique Grubisa - DG Institute

Lawyer, Asset Protection Specialist and Property Educator

Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at

This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

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