The global financial crisis in 2008 has led to increased demand for Self-Managed Super funds (SMSFs). With over one million Australians opting for one, they are the largest growing superannuation sector in Australia, representing a combined asset value of 550 billion.
However, before jumping in headfirst it is important to understand that running a fund can be complex and there is a range of important considerations to be made before establishing one. Discussing with one of our self-managed super fund Melbourne experts is essential to help you ascertain whether it is the right approach for you given your financial situation and available time.
What is a self-managed super fund?
A self-managed super fund (SMSF) is a superannuation trust structure that provides financial remuneration to its members in retirement. The main difference between SMSFs and other super funds is that SMSF members are also the trustees of the fund. SMSFs can have between one and four members, and one of the main advantages is the level of control that trustees have when it comes to tailoring the fund to meet their individual needs. This differs from retail and industry super funds, which are designed to benefit a large group of members, meaning decisions are based on collective interests rather than what is best suited to individuals.
SMSF: You Can’t Do It Yourself:
The ATO discusses the other members you will need to help manage your SMSF.
Why choose an SMSF?
Investors who choose SMSFs over standard superannuation configurations are often aiming to gain more control over their investment portfolios directly and diversify their portfolio amongst more asset classes than available from a standard super fund. An SMSF can provide access to direct ASX-listed shares, residential and commercial property, cash deposits and collectibles. The Australian Tax Office has introduced a fundamental change to superannuation by allowing borrowed assets to be held through super. This allows SMSF users to diversify further via the purchase of direct property.
The additional benefits of SMSFs include:
- Personalised restructuring to meet your family needs and circumstances.
- SMSFs have tax benefits in retirement, including CGT benefits when selling assets, including direct property (note: The Government has recently introduced a range of changes to superannuation, and we strongly recommend you seek advice before selling any assets to see if these changes affect you.)
How does an SMSF work?
SMSFs are established for the sole purpose of providing financial benefits to members in retirement and their beneficiaries. They have their own Tax File Number (TFN), Australian Business Number (ABN) and transactional bank account, which allows them to receive contributions and rollovers, make investments and pay out pensions.
All SMSF investments are made in the name of the fund and are controlled by the trustees. As a trust, an SMSF requires a trustee. There are two trustee structure options:
1. Corporate trustee – a company acts as the trustee and each member is a director. This structure allows simpler recording and registering of assets, providing administration efficiencies and flexibility in membership. Company establishment and ongoing fees are applicable with this structure.
2. Individual trustee – each member is appointed as a trustee, with a minimum of two trustees required.
SMSF: Individual or Corporate:
Delve further into the differences between individual and corporate trustees with this ATO video.
What are the responsibilities of an SMSF trustee?
SMSF trustees are responsible for making investment decisions and ensuring the implementation of an investment strategy for their fund. SMSFs also have strict administrative obligations that require trustees to maintain records, provide financial statements, complete a tax return, and organise an independent audit.
For this reason, many trustees engage SMSF specialists to help them manage their accounting, auditing and tax reporting, as well as provide financial and investment advice; however, they always remain completely responsible for the decisions and administration of their fund.
SMSF: Trustee Declaration:
The ATO discusses the importance of a trustee declaration document:
Who can have an SMSF?
The simple answer is just about anyone. This includes:
- Anyone under 70 years of age employed for more than 10 hours a week and earning income from that employment.
- Anyone who has funds in another superannuation fund or rollover investment that can be rolled over into an SMSF.
- A non-working spouse.
Exchange Traded Funds in an SMSF
Exchange-traded funds (ETFs) are investment funds that are traded on securities exchanges. Due to their tracking of a respective market, and variety of potential holdings, they have some additional benefits when compared to picking individual companies, or mutual funds.
- Diversification: ETFs offer a convenient way to diversify your investment portfolio, as they can hold a variety of assets, such as stocks, bonds, commodities, or real estate.
- Low cost: Compared to actively managed mutual funds, ETF’s usually have lower management fees due to lower operating costs, and less buying and selling within the fund.
- Liquidity: ETFs are easily bought and sold on exchanges during market hours, providing flexibility and liquidity to investors.
- Transparency: ETFs disclose their holdings regularly, allowing investors to see exactly what they are invested in and to assess the potential risks and rewards of the fund.
- Simplicity: ETFs are straightforward to invest in and manage, as they require only one investment decision, unlike individual stock investments that require ongoing research and analysis.
- Tax efficiency: ETFs often have lower capital gains tax implications than other investment vehicles, as they typically involve fewer buy and sell transactions.
It’s important to note that like any investment, ETFs carry risks and it’s important to carefully consider your investment goals, risk tolerance, and overall financial situation before investing in ETFs.
Direct Property in an SMSF
A Self-Managed Super Fund (SMSF) can benefit from owning property in several ways:
- Diversification: Property investment can diversify the fund’s investment portfolio, reducing the overall risk.
- Potential for capital growth: Property can provide a long-term investment opportunity and the potential for capital growth over time.
- Rent income: The fund can receive rent from tenants, providing a regular source of income to support retirement.
- Tax advantages: SMSFs can take advantage of tax benefits, such as tax deductions for property-related expenses and a lower tax rate on rental income.
- Control: SMSF trustees have control over the investment decisions and can choose properties that align with their investment strategy.
It’s important to note that SMSFs are subject to strict regulations and guidelines set by the Australian Tax Office (ATO) and there are specific rules regarding the acquisition and holding of property in an SMSF. Before considering property investment in an SMSF, it’s advisable to seek professional advice from a financial advisor or accountant.
How can our self-managed super fund Melbourne advisory help?
As your accountant for your Melbourne Self-Managed Super Fund, our job is to assist you in keeping your SMSF compliant. A series of guidelines dictate what you can and can’t do within your fund. An audit and tax return on the transactions and assets in your fund must be completed at the end of each financial year.
Keeping all your accounting and financial documents in one place simply makes sense. Our accounting team will ensure you are in the best possible position this tax season.