Why use an SMSF?
There are many advantages of Self Managed Super Funds when compared to other forms of Superannuation, including greater freedom and control, tax benefits and cost effectiveness, among others. If you are thinking about setting up a new self-managed superannuation fund (SMSF), there are a few questions that you will need to consider first.
What are Self-Managed Superannuation Funds?
An SMSF is a regulated superannuation fund which has four or fewer members. Those members are typically family members or close associates. The members of the fund are also the trustees of the fund (or directors of the trustee company) and therefore have the freedom – but also the responsibility – to make all of the decisions relating to the fund.
What decisions can the trustees of an SMSF make?
The trustees control the fund within the relevant legislation and determine:
- The SMSF investment strategy
- The type of retirement planning strategies to undertake
- The type of retirement income (pension) to use for its members
- The details of the super fund’s trust deed
What help do the trustees need to perform their duties?
Although the final responsibility for management of an SMSF lies with the trustees, they may engage the services of various professionals to assist them (and usually do so). Those services might include accountants, auditors, financial planners, lawyers and administrators.
What are the benefits of using a Self Managed Super Fund?
- Choice of fund investments – control and flexibility. A common reason for choosing to set up an SMSF is that the trustees want to be able to control the investment of their superannuation savings. The power of choosing investments for the SMSF resides with the trustees, however care needs to be taken to ensure that the trustee meets the relevant superannuation laws in terms of investment choice. Generally speaking though, an SMSF can invest in a wide range of investments, including direct shares, overseas assets and property as well as the traditional asset classes normally associated with super.
- Estate Planning - looking after your family when you die: an SMSF can be a flexible, targeted and tax-effective vehicle to provide lump sums or income streams to a member’s spouse and/or eligible children when the member dies - and it lets the members control the process. Importantly a member's SMSF estate planning strategy resides outside the member's will. This is not known to many SMSF trustees who forget to put in place an SMSF estate plan and are thereby missing out on highly valued taxation concessions and are also opening the deceased member’s benefits to legal challenge and in some cases, the Public Trustee.
- Cost effective administration and reporting. The cost of managing your own superannuation fund can be lower than a traditional retail fund, depending on its size, the complexity of the investments and how it is managed. For typically larger funds, there can be significant cost advantages. The Australian Tax Office reports that the majority of SMSFs in Australia have total operating expenses of 1.10% (as at 30th June 2015).
- Taxation Planning. An SMSF provides a flexible platform within which to manage the members’ taxation liability. This might, for example, be through selective investment of high franking dividend stocks, capital gains tax minimisation through the transfer of assets to pension phase where they become tax free, as well as other legal tax management strategies. These features are generally not available in retail superannuation funds.
- Family Super Fund. An SMSF provides the opportunity for up to four family members to belong to the same fund. A Family Super Fund allows the aggregation and investment of a family’s superannuation funds and they provide a pool of assets to look after family members including children, at the time of a member’s accident, sickness, permanent disability, death, pre-retirement and retirement. Family Super Funds also allow you to consider how you might pass down the benefits of the fund to your family by way of estate planning.
This website contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.