Be Sure Of Your Purpose Before Moving To An SMSF

You might wonder why it is important to set clear goals and be certain about your reasons for leaving the mainstream superannuation system to start your own SMSF.

I have had two instances recently, where SMSF trustee groups came to me AFTER they’d already moved from mainstream super to the SMSF environment, saying that they now weren’t sure if they’d made the right decision.

I found that in both cases, they were encouraged to set up their own SMSFs for what appeared to be good reasons at the time, only to find soon after, that circumstances had changed and the original purpose had not come to fruition.

Case 1

The original purpose was to buy business real property (that is, premises for their business to be owned by the SMSF). In this case, the client subsequently struck a great lease deal with their current landlord and the original need for their SMSF disappeared, at least for a few years.

Case 2

The original purpose was to minimise capital gains tax on the sale of a privately owned property. In this case, had the clients received advice from a competent tax advisor before moving to an SMSF it is likely that the purpose would have been revealed as invalid in the first place.

So why is being sure of your purpose so important? What difference does it make whether these people are in SMSFs or not?

From where I see things, it matters a lot because in both cases, once the original purpose had evaporated, the parties involved lost interest in their respective SMSFs. Because they had come from retail super, they immediately slipped back into a ‘set and forget’ frame of mind.

In the SMSF environment, this attitude rings alarm bells very loudly to me!

Why? Because client disinterest means that I am likely to find inattention to compliance, record keeping and annual reporting. And in both cases, that is exactly what I found in the course of gathering information.

Even though outstanding matters were brought up to date very quickly, inattention to these matters can result in adverse outcomes ranging from late lodgement to contravention, depending on the period and extent of the inattention.

In both cases, the clients indicated that the move to SMSF was at the suggestion of other professionals. Whilst it may have been well-meaning, it became clear to me that these clients had not fully understood the responsibilities and implications of being a superannuation trustee. When I explained it to them, it came as a complete surprise.

This is not the first time I have seen time-poor business owners pushed towards an SMSF with no idea of what it actually means to be a trustee of a superannuation fund. It is easy to say that all SMSF members must be trustees, or directors of the trustee company, and bear 100% of the responsibility but living it is a completely different reality if people aren’t ready for it.

This is general advice only. The purpose of this article is to provide you with practical examples as a means of education in a difficult area. As a licenced financial advisor, I strongly urge you to seek personal advice based on your individual needs and circumstances, before making any decision about self-managed superannuation.