Podcasts
Ashwin Ramdas
Sonny Rahim
Updated Dec 19, 2022
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Tim: Welcome back to SMSF Mate Podcast. Today, we’re talking about SMSF trustee and declaration templates, what they are, where to get them and important considerations when you’re looking for them. My name’s Tim and I’m here with?
Sonny: Sonny.
Ashwin: And Ashwin. I think the template market is there generally to make things easier. People can go through their own step-by-step guide but templates also brought with their own risks around it. There’s usually a T’s and C’s page when you’re going through the process then there’s maybe ideally in any template there’s a little question mark whenever you’re filling things in so you have more information of what you’re trying to put in there because the mistake of completing it wrong could be more detrimental than the 500 to a thousand dollars maybe you’re saving by using the template yourself. In my mind if you’ve gone through the process to set up an SMSF you probably should also have gone through the process of getting advice to make sure it’s the right structure for you or what it entails if you decide to ignore that advice but by doing that you would have been engaged with some sort of advisor whether it’s an accountant with a financial license or whether it’s a financial planner on their own showing you that they would do the setup for you. Usually that set up bought on average, I would assume most accountants are probably making maybe $1200 in total from a setup of an SMSF which isn’t a lot of money when you incident, maybe the hours involved in preparing it and reviewing it, sitting down with you, getting it signed, executed, etc.
If you want to do it yourself or you go through one of those online platforms that will set it up and register it for then that might be okay because they’ve got a system and a process to align to make sure it’s compliant and everything else. That’s when my fear is people find templates online, they edit it with their name, the details and go ahead and go well, we’re good. Well no, you’re not.
Sonny: Don’t do it.
Ashwin: Yes because the auditor’s not going to be happy with it because he’s probably going to review it and go where’s that deed come from. If it turns out it isn’t compliant you’re in a whole world of pain or because you try to save a thousand dollars at the start. My gut feeling is if you can’t afford a thousand dollars to set up the SMSF or the 1500 or the 2000 to set it up if you’re a corporate trustee why are you doing it in the first place because the running costs of a super fund which I’m sure would roll within another future conversation are significant. If you can’t afford those running costs, is it the right vehicle for you in the first place?
Sonny: Maybe touch on the actual cost of establishment and how that references.
Ashwin: If you do a normal SMSF roughly with individual trustees, sorry. If you’ve got two members you would roughly pay maybe $300 on a template at a website for them to fill it out with you versus maybe sitting down with an accountant after you got the financial advice to give you the okay to do it or you’ve ignored the advice. Whatever it is but you’ve got the advice. It’d probably cost an accountant on average $600 to $1000 to set that up for you. You’re really saving $500 potentially or a bit more if it’s a company to run it but if I’m going to be investing all my super in it and my super balance could be anywhere from 100 to half a million dollars. If I can’t part with that extra $500 or $1000 dollars at the start what am I really doing this again.
Sonny: The risk of getting it wrong as you mentioned far greater than a thousand dollar differential. Even double that.
Ashwin: Yes, exactly. You’ll find constantly that your deed will get updated in a super fund maybe every three years. Might be more or might be less dependent on legislation changes. That deed that you’ve saved in the first one you’re going to have to update it anyway. If the deed’s your own template, the lawyer reviewing it might just go, I want to charge a format to review the whole deed and supersede it anyway. You might as well just add it in as a compliance cost. If you can’t afford it’s probably a red flag that you shouldn’t be going down this pathway. Saying that there are some online providers that have found efficiencies to make this work but you’ve got to read through that deed. All the restrictions within their fund and things to work in that platform. I have seen websites where there’s zero dollar setups and things like that and they might be perfectly fine for you but then go through their process. Don’t you try and do the deed. Go through some sort of process not involving yourself.
Sonny: Actually even with that process the quality of that output is only going to be as good as the input. Even if there is a very clear laid out directional process of answering certain questions. If you answer that wrong because you don’t understand what is being asked there’s still a chance of it coming out with a poor output. I think even though there are those efficiencies for platforms and those establishments I think we would still encourage people to seek assistance from an advisor or an accountant during that process. Have the advisor engage in that process so you don’t get it wrong.
Ashwin: I totally agree. Your best advice is to engage a professional at the start to A, establish it and then make sure it’s all going okay going forward. I am wary when people go down the path of do it yourself when they don’t have a financial background or a legal background and things like that because even when a super fund is established and an accountant or advisor is involved the ATO will call trustees on occasion to ensure they actually understand what they’re doing and part of that journey would have happened if they engaged a financial advisor or a licensed advisor in the setup process because i remember we had a client set up a super fund. They had phone call from the ATO and they answered all the questions perfectly fine that the ATO okay, yep this is an established super phone and these people are investing for their purpose and they understand what they’re doing.
Sonny: I was going to say remembering. It’s remembering for us but I guess for the general audience it still comes down the trustees of that self-managed super fund which are typically individuals that are involved or then the directors of the company that are then the trustee of the super fund. They are ultimately responsible for the running and management of their own self-managed super fund.
Ashwin: Like we’ve said before it’s self-managed is that first two words self-managed. You are responsible for how it goes and where it goes and making sure you don’t get in trouble. I would engage advisors whenever you’re not sure.
Sonny: There’s some, I haven’t looked for a little while but there’s some good engagement tools in terms of outside maybe some of the general information that you get via our website. There are trustee programs that are out there that different providers make accessible to people considering a self-managed super fund almost a trustee program.
Ashwin: There are definitely things around that. I think one thing that i think the space probably needs at some point is an actual education establishment that will run through trustees like a here’s a course but ATO strongly recommends that you do and I think there are courses when people have caused contraventions to go through an education process but get a mandated course every time a self-managed super fund was set up that XYZ had to attend it. You’d probably sort it out but then I can understand the other side of it, people saying well, why is there another barrier for my own money. It’s because it’s for you.
Tim: Even like an RG146 specific to certain products or investment types that could, they’re not too hard.
Ashwin: I can’t speak for everyone but my clients, there are clients that don’t quite get all the financial matters but they want to be first-hand control. They might be doing a disservice for their retirement fund by controlling it all opposed to engaging advisor but there’s been and typically it’s because there’s been some past event where an advisor has lost their trust that they’ve now gone into. We’ll just manage it ourselves and we’ll deal with the consequences which ultimately accountability yourself is great because but advisors got tarnished but it’s hard that a whole bunch of advisors got tarnished because it’s not in my belief. It’s not the norm and it’s probably more because you didn’t ask the right questions of your advisors like how they remunerated what’s their incentives, how is this a prudent financial plan and how will this help me in retirement. If you don’t ask those questions it’s hard for the advisor to help you as well.
Sonny: I think I’d support the idea of that education process up front. I mean it’s important for trustees, anyone considering their own self-managed super fund to understand what they’re doing. It’s their funds that they’re putting at risk and how they’re managing it. We’ve talked about a couple of times before yes, it’s self-managed and that onus is on self but it doesn’t need to be solely managed. There’s a world of assistance out there from advisors, financial advisors, accountants, lawyers. There’s broader engagement tools to help you manage your self-managed super fund. You don’t need to do it alone. In some cases frankly shouldn’t.
Ashwin: No, exactly. I think that’s why it’s important to have a healthy balance before you engage in a self-managed fund because you probably should be leaning on those resources. If your fear of engaging those resources is cost then there’s a bigger concern because I’ve seen it and experienced it. We probably all have mates that have done it. Try to save some money in a process whether it’s a renovation or something by doing a little bit themselves. Turns out that cost a lot more money and time and headache with their misses because of the shortcut that was blinded in there. I can regrow that. Oh no you can’t. Just get the guy in to put a new one in and kill the weeds underneath it so it doesn’t come back up.
Tim: Ashwin, not to digress too far but do you think that detachment from how people managed their self-managed super funds or how serious they are about it can sometimes come down to the fact that some people still engage their super as if this is some money that is not ours. It’s not our money yet. I think in a lot of our conversations we try and link back to yes, it is your money. It’s just that you can’t access it yet but it can be meaningful to you at some point in time in the future so if you’re going to do it do it right.
Ashwin: I think it’s definitely there because when you’re young and you think about the way and it stems all the way back to the lack of financial education we get when we’re young. You start your first job. You get a form. You’re so in the rush of earning the first paycheck at wherever you work that or for me it was Maya. You just tick the box and choose the default super fund. There’s been some changes now that at least your fund will follow you with you and things like that going forward but what was the process of selecting that fund? Where was the conversation with your parents or people around your age around financial which one should i be part of, what sort of things are they investing? That doesn’t happen. It’s because we know we can’t touch that money until we’re 65 or 60 or whatever it is when we retire. It could be 70 by the time I get there. You sit there and go, I’m 18 year old me or 17 year old me does not care about 65 year old me at that stage. I’m making enough dollars so I can go to the pub and go out. We never get engaged because it always seems too far away. If we have to think that far away we can’t realize that money in our head.
I think it has been good for some people and it’s bad for others. I’ll say that in the sense if you’re a person that is or use an example. I was talking to a broker the other day. He’s like we’ve got a mining client, in his mid-40s, earning close to 300, barely scrapes enough money for a deposit for his six hundred thousand dollar house. Do you think he earns enough that he’d pay this house off in five years but where’s the money gone just day to day but his super balance is very, very healthy. It’s only because he can’t touch it. It’s been invested in an advisor and it’s probably grown and managed well. I don’t know but it’s still maintained because he couldn’t touch it. All right so for those people supers are like godsend and if they were self-managed chances are might not have gone so well. Well, other people would say the opportunity costs or the opportunities in front of them and would want to take control of their money once they had a healthy enough balance to do it. Great. I think there’s two streams about it. I think it’s just…
Sonny: I think there is but I think there’s a challenge when you see 50 year olds taking the same approach to the superannuation to your example of that 18 year old.
Ashwin: Oh fifty year old. Well yes, it comes back to the conversations that 50 year olds had throughout their life right? I’ve been trying to educate my friends in my thought process of if we put more money in super now we don’t do the argument if we’ll do it when the kids move out of home you’re going to be way better off by sacrificing hard in these years now than trying to do the 50 year old catch up between your 50 and 60 trying to throw in that same amount of money without the same return because you’ve lost the timing. You’ve lost all that compound amount and all the rest of it because you said to yourself and then the other hard part is I’ve seen it. You see those 50 year olds now throwing their full amount into super, the 25 or 30 grand into super each year and you’re like…
Sonny: Playing catch up.
Ashwin: Playing catch up but they’re also giving up that little window when the kids have actually moved out and you and your wife or you and your partner want to go out and do things. You’re just throwing all the extra money in super. That hurts. Like i would prefer to buy it on something stupid at that point because it had been invested well prior that i can afford to do it instead of going oh no, being close to retirement. We’ve got to throw it all in.
Sonny: I think we, i think it’s on the website yet but we should put this up. That is reminding people that it is your money. You can’t get to it and under current legislation it’s still one of the most tax effective vehicles to get compounded accumulation of wealth.
Ashwin: It is the best vehicle you’ve got except you can’t take control of that vehicle until to your pull-up stumps but nothing wrong with that. Just make sure you can still do the other things you want to do in your life.
Sonny: Which coming back full circle. Taking all that I guess not necessarily risk but taking the time and the effort to build up a superannuation balance and manage it correctly along the way is all going to be put at risk if you don’t get the establishment right and you try and cut costs.
Ashwin: Oh exactly. It all comes back to this, the setup. If you’re looking from the point of view, this is a 20 or a 30 year or 15 year journey depending on when you decide to do this. Really? Are you going to try and save a thousand bucks? Don’t sweat it.
Tim: It’s a good segue. I think if we just touch on exactly like what a trust deed is very brief and why you would need it. Then I think the risks associated with getting it wrong whether it be changing legislation or it’s just some sort of error in there. What happens if you get that wrong and what are the penalties?
Ashwin: The deed’s a rule book. It’s your rules. It’s sort of like these are the rules for how your super fund is going to run.
Sonny: It establishes the trust.
Ashwin: It’s the establishment of the trust. It’s a rule book. The HO don’t like when family trust deeds get moved and changed a lot because it could cause a resettlement but in the provision there’s no provision for that with superannuation. You can update the deeds as often as you need to because superannuation law changes regularly. There’s a requirement for it to be audited. Because of that we strongly recommend that people regularly update their deeds as part of their process because your deed from three years ago might be missing a few causes that have changed since and you need to now establish it in the new environment but…
Sonny: Sorry, just i guess for clarity the trust deed is the document that establishes the superannuation fund.
Ashwin: The existence of it. You need that all executed then you apply for your AB and your TFN to run the trust and then you go through the normal regulation processes once that’s happened but it’s ultimately the establishment of the trust and the super fund. The consequence of getting it wrong could be up to a penalty of it’s a non-combined fund. There’s a 46%, 49% now penalty for a non-compliant fund.
Tim: That’s the tax rate is it? 49% tax on the money that’s in the fund.
Ashwin: Top marginal tax rate.
Sonny: You will lose your concessional tax treatment.
Tim: Okay so all the good things about a super fund disappear if you get that wrong potentially. The risks are high.
Ashwin: The risks are high for something that shouldn’t be a risk you take lightly. Why would you not go through a proper establishment process and go through it and do it properly?
Sonny: That is probably the greatest risk. The benefit of the superannuation environment itself is that tax concessional environment to help you accumulate. You get that wrong then staring down the barrel of 15% in an accumulation account which is the current tax rate within superannuation environment versus then your top marginal tax rate if you get it wrong.
Ashwin: That’s the trade-off people make for the tax benefits are there because you can’t touch it until you try. You’re giving it all away and you can’t touch it because you decide to be want for another word cheap with the setup.
Tim: I think one thing that actually really stuck with me, I think it was the last podcast we did was the discussion about you’re getting tunnel vision with paying off your mortgage for instance and ignoring the benefits of topping up your super. It’s almost like the penny just sort of dropped. I was like oh yes, saving on tax to that percentage is far greater than what you could save on interest. I guess going back to this risk that all goes and it costs you more if you get that wrong.
Sonny: Well, you’ve lost the benefit and you’ve lost access.
Ashwin: That’s why it’s a big step to decide to go down the self-managed pathway. It shouldn’t be taken lightly because there are plenty of funds and products out there where you can manage your super without that risk generally. Why would you take that on yourself by doing self-managed unless you definitely believed you could do well with the money you’re investing and you had control over it and all the rest of it? Those reasons for you to do it otherwise…
Sonny: If you were prepared to engage broader experts…
Ashwin: When you need it. If you can’t tick those boxes there’s quite a few flags saying you know what? You might as well just pay the fees to be in a good fund that suits the outcomes you’re trying to achieve in retirement and have that conversation with a financial advisor and go should there. Should I go in this vehicle because you’ve got two options? You could go with an advisor. You could go, three options. An advisor, an industry fund with an advisor but or you could go down a self-managed pathway with an advisor but which vehicle is going to get you there is up to what you need it to do and should be part of a broader statement of advice you should get before you go down this pathway.
My fear is sometimes you see these things online where people can just set up a super fund straight off the bat without getting advice. As much as an accountant you want more fees. You don’t want those fees because chances are those funds are closing down very quickly because people didn’t need them or didn’t want them. It’s a painful process at that point.
Tim: I think I thought of the other day was and it’s I guess on the point of leaving your investment like to sort of mature. It’s probably the best investment I’ve ever made was one that I forgot about. Literally just an old, I think it was like a NAB trade account. Forgot that I had it. It was not much in there but it was like a resource stock and I found it like five years later. It had gone up like 10 times.
Sonny: That’s the old quote that is on our website. It’s about that time in the market not timing the market.
Tim: Exactly and i, 100% would have sold it if it had gone up.
Ashwin: Five times, two times.
Tim: Probably not even one time. That will do.
Ashwin: Are they still trading well?
Tim: No. They’re going there.
Thank you for joining us once again. If you’re interested in our waffle about self-managed super funds feel free to join us on smsfmate.com.au or search SMSF Mate in Spotify.
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