Self-managed super funds have become a new favourite of the Australian public over the past few years. More and more people are looking to get total control of their finances and retirement.
Whether your motive is frustration with the underperformance of some retail and industry super funds, or the desire to be more involved and have complete control over the management of your fund, then self-managed super funds may just be what you’re looking for.
In this post, we’ll take you through some SMSF basics, benefits of the fund & and things you’ll need to set up an SMSF.
What are Self-Managed Super Funds (SMSF)?
An SMSF, or private superannuation fund, is a super fund that you manage yourself. That is, you choose where and how to invest your super funds as opposed to using traditional super funds managers that usually determine how and where your funds are invested.
The SMSF legal structure is regulated by the Australian Tax Office (ATO), and it makes it possible for you to manage your own retirement and finances. Because running an SMSF takes time and effort, ATO actually recommends you consider appointing SMSF professionals to help you with setting up your SMSF and developing and implementing your investment strategies.
Key Features & Requirements of SMSF
Greater flexibility and control is what many people like about SMSFs, however, there are a few things you will have to consider, such as:
- The money in the fund can only be used for retirement purposes, except with a few exceptions such as the first home buyer super saver scheme.
- A member cannot be a member of more than one SMSF.
- There can be no more than 6 members in your SMSF, as of 1 July 2021.
SMSF funds have increased in popularity over the past 10 years.
According to the Australian Taxation Office (ATO), there are nearly 600,000 SMSFs in Australia.
Choosing to start an SMSF is not, and shouldn’t be an easy decision. There is a lot that comes with it. However, the benefits can often outweigh the risks.
6 Benefits of Self-Managed Super Funds
1. Comprehensive Control Over Your Portfolio
The number one benefit of starting an SMSF is that you’re able to assume full control over your retirement fund. This includes total freedom over the investments portfolio along with the associated risks. You won’t have to worry about financial or investment advice not being in your best interests.
While you may need the service of SMSF advisors, as a trustee you are to develop and implement the fund’s investment strategy and make all investment decisions.
The sound of this may be intimidating at first, however, with knowledgeable accountants by your side, we’ll help you with decisions on the direction you’d like your funds to take.
2. Improved Investment Options & Flexibility
Rather than only being allowed to manage the level of risk with your investment, an SMSF allows you to access a wide range of investment options with different levels of risk.
Depending on your risk appetite, you can access opportunities that are not possible through the more traditional super funds.
While that improved flexibility may bring opportunities for greater growth, it also comes with an increased level of risk which is why it’s advised you employ the service of professionals to help you manage your super fund.
3. Leverage Your Super Funds to Acquire Investment Property
With an SMSF, you have the option to leverage funds from your superannuation fund to invest in property.
For example, if you’re a first-time home buyer you may be able to use your super funds towards your deposit. The maximum amount of $30 000 (soon to be $50 000 in July 2022) can be accessed through the FHSS scheme before retirement.
The main benefit of this FHSS scheme is the favourable tax advantage that applies with super savings.
Also, one of the beauties of having a SMSF is that you can use your super fund to borrow money and invest in real estate.
If done right, leveraging your super funds to invest in property can provide good returns to your SMSF. However, this kind of borrowing comes with strict conditions that must be met and risks that must be understood well before taking on the opportunity.
At Tax Delivery, we believe setting up an SMSF doesn’t have to be complicated. If you are ready to establish an SMSF, Tax Delivery & Accounting Solutions can attend to all aspects of the set up and administration process.
4. Manage Capital Gains Tax
The standard capital gains tax (CGT) is taxed at a concessional rate of 15%. That means if you buy an asset within your SMSF scheme and sell it later for a profit, then you’d be liable to pay only 15% in capital gains tax rather than your marginal tax rate of up to 45%.
It gets even better.
If you keep that asset you bought for 12 or more months, you may qualify for a one-third discount rule which means instead of being taxed at 15% you’d now be taxed at 10% for capital gains tax. This only applies when your SMSF is still in the accumulation phase.
If any of the members of the scheme are in the retirement phase, meaning they’ve started withdrawing from the SMSF scheme) additional tax concessions may apply.
In fact, the ATO says that if SMSF trustees take all necessary steps to claim this exemption, the tax rate on those assets, including CGT, can be as low as nil.
5. Pool Your Superannuation funds with family
You can think of this as a modern-day family trust. In the same way, that trust allows you to pool your family’s money together for investment purposes, an SMSF can do the same.
With- the recent increase in the numbers of trustees per SMSF, it’s now easier than ever for family members to be part of the same fund.
While some people may not recommend having children be part of your super fund, it can actually bring some major benefits such as a smoother inter-generational transfer of assets and the power of combining resources for the shared family interest.
6. Control Who Profits From Your Estate
When it comes to estate planning, SMSFs provide greater flexibility. For example, SMSF trustees can make binding death benefit nominations that do not lapse, unlike many public offer superannuation funds which tend to require binding death benefit nominations to be updated every three years.
In addition, SMSF members may have greater flexibility in specifying how death benefits are to be paid.
Tax Delivery Is Your Expert SMSF Accountants
The importance of setting up your SMSF correctly cannot be understated. To be eligible to tax concessions and also avoid tax penalties, every item SMSF checklist has to be set up methodologically to avoid costly mistakes.
Our dedicated team of SMSF accountants and superannuation experts are here to advise, assist and optimise your SMSF. We personally ensure all your superannuation needs are delivered effectively and efficiently, with the highest quality of service at a fair cost.
If you would like any more information as to whether it may be of profit to you or not, please do let us know. Talk to one of our SMSF accountants today.