5 Benefits of an SMSF

Have you ever wanted to have control over your own superannuation fund and not just rely on a man in a suit to decide where your money is invested? Then you can have a discussion with us about your current financial position to see whether a Self-Managed Superannuation Fund is a good choice for you.

To give you a better understanding of how an SMSF works, here are the five benefits of having one:

1. Effective tax control / tax reduction 

• Because SMSF trustees have control over their SMSF investment choices, they can decide when an asset is sold, which may have an impact on the amount of tax payable.  
• SMSF contributions tax is not paid until the yearly tax return is filed, giving investors more time to achieve investment returns.  
• There is no tax owed on the fund used to purchase the assets that provide a pension income stream for a member.  
• Has a 15% tax rate for assessable income of a complying SMSF, including the following:
• 1. employer and personal deductible contributions  
  2. interest, dividends, and rent  
  3. net capital gains (Net Capital Gains = Capital Gains – 1/3 CGT discount for assets owned for more than 1 year) 
  Non-arm’s length income = activities and investments that fall outside the 15% tax rate is taxed at the highest marginal tax rate: income from an investment where the parties are not dealing with each other at arm’s length.

2. Investment control and flexibility

An SMSF is required is to have an investment strategy according to the SIS Act 1993 section 52(6).  

An investment strategy is a detailed financial plan based on the current and future financial needs of each member in the fund. It should take into account the following factors:  

1. 1. Investment objectives of each member  
2. 2. Parameters for the investments like asset allocation  
3. 3. Investment liquidity – how easily the investment can be converted into cash  
4. 4. Risks and returns on investments  

You don’t have to rely on a man in a suit in a tall glass building making investment decisions on your hard earned cash.  By setting an SMSF, you will have a say in where your money is invested!  

3. Estate Planning / Transferring wealth to next generation  

A death tax is defined as a tax on the accumulated wealth at the time of death that is directly applied to the deceased person’s estate (estate tax) or levied on the heir at their marginal tax rate (inheritance tax).  

Did you know that Australia abolished the death tax in 1979? However, you can still be taxed with the capital gains tax (CGT) when you sell your inherited asset, and any income generated from the assets you inherit is taxed at your marginal tax rate.  

Also, superannuation benefits paid out to a non-financial dependent upon death get taxed at 17% of the taxable component which is effectively a hidden death tax on super that people are not aware of.  

Having a binding death benefit nomination and a will in place is extremely important to ensure your wishes are adhered to.   

These are the options you have when doing estate planning with SMSFs:  

1. * Instead of paying a lump sum for the death benefits, they can be paid as a pension to the dependent(s). In this way, it does not greatly affect the fund’s investment strategy.  
2. * Death benefits are not necessarily paid in cash, as non-cash assets—such as properties and shares—can be directly transferred to a beneficiary. Take into account that stamp duty will be applied and needs to be paid during the transfer.  
3. *17% tax is payable on the taxable component of your superannuation balance—do you know what this balance is for you? The taxable component is mostly from your concessional contributions over time (e.g., employer contributions and salary sacrifice).  

As you reach the retirement age of 65, withdrawals from your super fund will be tax-free. 

Taking steps now to facilitate intergenerational wealth transfer in order to minimise the tax due is something that can be achieved and we encourage you to get professional advice.  

Protect your family from paying more unwanted tax!  

4. SMSF is transparent  

Transparency in an SMSF has a simple meaning: you know exactly what is going on with your money as the fund is audited every year.  

Every member is entitled to their balance and this is ensured with correct record-keeping. Tracking every single transaction in your account is only possible in an SMSF, unlike retail or industry superannuation funds.  

Having control over the fund gives you the advantage of monitoring the contributions, income, and expenses. This gives you an opportunity to manage your fund based on the performance of the investments.  

5. Cost-efficiency

Do you know the hidden fees in your current retail fund?  

With an SMSF, costs incurred for the fund are transparent, which gives you the chance to review them. The following are usually included in the annual fees for SMSF:  

1. – Tax return preparation  
2. – Annual audit   
3. – Annual ASIC fee for special purpose corporate trustee  
4. – SMSF ATO Levy  
5. – Other professional consulting or investment management fees to help you manage and take control of your funds  

If you want to start an SMSF now, we recommend that you see a registered financial adviser to discuss all things related to an SMSF,  as it is also important to remember that the investments to be made should abide by the superannuation law. In order to ensure that your SMSF remains compliant, you can consult with licensed SMSF Advisers like us!  

For a personalised consultation regarding SMSF, click on the button below to schedule an appointment with us now!