Is a Self-Managed Super Fund for you?
Self-Managed super funds (SMSFs) are a way of saving for your retirement.
The difference between an SMSF and other types of funds is that the members of an SMSF are usually also the trustees. This means the members of the SMSF run it for their benefit and are responsible for complying with the super and tax laws.
If you set up a self-managed super fund (SMSF), you’re in charge – you make the investment decisions for the fund and you’re held responsible for complying with the super and tax laws. It’s a major financial decision and you need to have the time and skills to do it.
An SMSF must be run for the sole purpose of providing retirement benefits for the members or their dependants. Don’t set up an SMSF to try to get early access to your super, or to buy a holiday home or artworks to decorate your house. These things are illegal.
BENEFITS OF AN SMSF
Investment control
Most superannuation funds will allow you to invest into assets such as:
-
shares
-
fixed interest
-
property via managed funds (often with restrictions).
SMSFs can offer a range of additional options including:
-
direct property (commercial or residential)
-
physical gold and other commodities
-
collectables such as artwork (subject to strict requirements)
-
Managed Portfolios.
SMSF benefits also include the flexibility of borrowing within your fund for investment purposes. Also, some small business owners may hold their business premises within their SMSF for a variety of reasons including asset-protection, succession planning and security of tenancy.
Greater investment flexibility
SMSF members also have greater flexibility on when they acquire and sell their investments and this hands-on approach can mean, for example, as market conditions change you can quickly respond by adjusting your investment portfolio.
Ability to pool your super
Another benefit to an SMSF is the ability to pool your resources with up to three other members. This increased pool may allow you to access investment opportunities that may not be available otherwise to your SMSF.
Estate planning
SMSFs offer great flexibility with your estate planning needs. If the fund’s trust deed allows it, SMSF members 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.
Effective tax management
In an SMSF you have greater control of your assets and investment decisions, which may allow you to better manage the tax position of the SMSF.
The current tax rate on earnings within a superannuation fund is 15%, but where the income is produced by assets wholly supporting an income stream such as a pension, there is no tax payable within the fund on that income.
This difference in tax rates means that by having control over the disposal of assets, you may be able to reduce, or potentially eliminate a capital gains tax liability.
Adding value with property
Adding to your SMSF with property can be another way to grow your super. Owning property through your SMSF typically involves the fund acquiring a residential or commercial rental property which is leased to unrelated tenants. Fund members or relatives can’t rent a residential property from an SMSF because of the in-house assets test.
Compare SMSFs with other super funds
| SMSF | Other super funds |
|---|---|
| Can have a maximum of four members.
All members are either individual trustees or directors of a corporate trustee of the fund. This means all members are involved in managing the SMSF. |
Usually no limit on the number of members.
Professional, licensed trustees are responsible for managing the fund. |
| SMSF | Other super funds |
|---|---|
| Trustees are expected to have knowledge of tax and super laws and must make sure their fund complies with those laws. Compliance risk is borne by the SMSF trustees, who can be personally fined if their fund breaches the law. | Compliance risk is borne by the professional licensed trustee. |
| SMSF | Other super funds |
|---|---|
| Trustees develop and implement the fund’s investment strategy, and make all investment decisions. | Most allow you some control over the mix and risk level of your super investments but you generally can’t choose the specific assets your super will be invested in. |
| SMSF | Other super funds |
|---|---|
| Trustees must consider whether to purchase insurance for their members. Insurance premiums may be higher than in other super funds. | Most offer insurance cover to members. Member insurance usually costs less as large funds can get discounted premiums. |
| SMSF | Other super funds |
|---|---|
| Regulated by the ATO. Trustees are required to engage with us to manage their fund. | Regulated by the Australian Prudential Regulation Authority (APRA). Generally members don’t have to engage with APRA. |
| SMSF | Other super funds |
|---|---|
| We are not involved in resolving disputes among members. Disagreements can be resolved through alternative dispute resolution techniques or in court, at the members’ own expense. There is no government compensation scheme. | Members have access to the Australian Financial Complaints Authority (AFCA) and may be eligible for statutory compensation. |
| SMSF | Other super funds |
|---|---|
| No government financial assistance is available to SMSFs.
Members may have legal options under Corporations Law but there is no guarantee that compensation will be awarded. |
Members may be eligible for government financial assistance in the event of fraud or theft. |
As a trustee of an SMSF you’ll be responsible for operating your fund within the law. If you don’t, you may face severe penalties and your fund may suffer tax consequences.
There are also costs relating to the set up and maintenance of an SMSF. You might find that the fees you pay for an SMSF are more than you would pay in another type of super fund. Every year that you have an SMSF you’ll need to pay for an independent audit and the supervisory levy. Most SMSFs also pay for additional help, such as:
- preparing the SMSF annual return
- valuations of the SMSF’s assets
- actuarial certificates for SMSFs paying income streams (pensions)
- financial advice
- legal fees, for example if the trust deed needs to be amended
- assistance with fund administration
- insurance for members.
Our experienced team can provide advice to members and trustees, from set up, contribution caps, capital gains tax, administration and other complex superannuation tax issues.
We can provide the advice and guidance to help you fulfill your duties and obligations.
Contact us today to discuss your Superannuation situation on 07 5532 1733 or by clicking here
Article referenced from: Australian Taxation Office and BT Super
