As published in The Q Review Spring 2020 Magazine.  Follow the link to Subscribe and receive your FREE copy each quarter!

In Part 1 we raised why, for the right person, with the right personal attributes and the right goals and ambitions, we love self-managed superannuation.  We also looked at who SMSFs are right for, who SMSFs are not right for, and who can establish an SMSF.

What About a Minimum Balance and Required Investment Strategy

The regulators, ASIC and the ATO, have provided guidance over time regarding suggested other requirements to establish and operate an SMSF.

At varying times ASIC have recommended you must have at least $200,000 all the way up to $500,000 in super before you start an SMSF.

While there is in fact no legal minimum balance requirement, it is true that in order to benefit from an SMSF you should either have a reasonable minimum balance or a realistic strategy to increase the balance to a reasonable level in the short to medium term.

…we are seeing individuals increasingly frustrated with the limited investment options within their public offer funds…

The ATO have also attempted to coerce SMSF owners into diversifying their investments, suggesting those with SMSFs that have invested in one or just a few key assets may not be complying with the rules.

Again, there is no legal requirement to have a diversified portfolio.

So long as you have considered what you are trying to achieve, the risks and the potential rewards, and documented that decision in an investment strategy, then you can be as diversified or undiversified as you like.

Borrowing within your SMSF

Traditionally borrowing within superannuation is not permitted. However, an exception does exist for SMSFs, and this is most relevant for those wishing to invest in property.

While there are some structuring requirements that must be met, if you wish to attempt to build your superannuation savings via property, an SMSF is generally the only way to do it.

Saying Goodbye to your Commercial Landlord

Investing in property is one of the most attractive elements of an SMSF for business owners.

This is because it provides the best, and often the most tax effective, opportunity to purchase the premises from which they operate their business and therefore say goodbye to their commercial landlord once and for all.

Though SMSFs are Not Just For Property Lovers

In fact, SMSFs have a wider range of potential investments than most public offer funds.

That is becoming even more so in recent times as the funds management and superannuation industries attempt to reduce their risks since the Banking Royal Commission.

As a result, we are seeing individuals increasingly frustrated with the limited investment options within their public offer funds (ie. restricted to just the top 300 companies in the ASX) and therefore they are seeking to establish their own SMSF so they can invest in small cap companies, start-ups, exploration companies, cryptocurrencies, collectables and the like.

Can Your Accountant Help you Establish an SMSF?

Now it’s time for some controversy. Because despite the laws being very clear in this regard, and having been so for some time, there are still many accountants and advisers who walk the tightrope of compliance in this area. Or they have found an ingenious way around the laws while avoiding the requirement to become properly licensed themselves.

The short of it is… an accountant or adviser may ONLY provide you advice about, or assist you in, setting up an SMSF if they hold an Australian Financial Services License (“AFSL”)*.

Traditionally most accountants DO NOT hold an AFSL!

If your accountant doesn’t hold an AFSL they shouldn’t be providing you with any of this advice…

An accountant or adviser may also only provide advice about or assist you with rolling monies into an SMSF, contributing to an SMSF, withdrawing from an SMSF including via lump sum or pension, or winding up an SMSF if they hold an AFSL.

If your accountant doesn’t hold an AFSL they shouldn’t be providing you with any of this advice or service and if they are, they may well be failing to meet their legal obligations.

Some accountants have avoided the need to obtain an AFSL by either acting under a separate AFSL holder (as an Authorised Representative), or by using one of the new SMSF establishment services that purport to get around the legal requirements.

In that case, we recommend doing your homework as you need to decide whether you will take your advice from someone who was unwilling, or worse unable, to earn the license to do so in their own right.

* CapitalQ SMSF Specialists Pty Ltd holds its own AFSL (Number 488498) and each of its Directors, Duncan Melbin, Kapil Bhasin and Abhishek Puri are registered Financial Advisers. We aren’t stock pickers (taking the credit when the market goes up, denying responsibility when it goes down), we don’t sell insurance (though we believe in it) and we don’t charge based on a percentage of funds under management. We do give fee for service advice regarding your superannuation strategy. To check whether your accountant or adviser is authorised to give SMSF advice, visit the ASIC Financial Advisers Register at moneysmart.gov.au/financial-advice/financial-advisers-register.