Self-managed super funds (SMSFs) are the fastest growing segment of the super industry1. But this doesn’t necessarily mean they’re the best choice for everyone.
As at June 2015, there were 556,998 SMSFs in Australia, with a total of $571,802 million worth of assets2. There are many compelling reasons why SMSFs are so popular — and equally persuasive reasons as to why they don’t suit everyone.
If you’re a keen, experienced investor with at least $200,000 to invest, and the time and expertise to manage your own investments, a SMSF could be a good choice.
One advantage is that SMSF administration costs stay fixed – unlike a retail fund, which charges fees as a percentage of the value of your portfolio.
For example, if your super fees are 1% of your fund’s balance, you would pay $2,500 if you had $250,000 worth of superannuation savings. If your portfolio balance grew to $500,000, you would pay $5,000, but with an SMSF you would pay the same amount in administration costs, regardless of how much your balance grows.
If you’re a business owner, there may be advantages for your business premises to be owned in your SMSF and then leased back to the business. The income your SMSF receives as rent is usually taxed at just 15%. If your SMSF borrows money to buy the premises, the interest on the repayments can be tax-deductible to the fund. You’ll also be effectively your own landlord, providing security to your business’ tenancy, however the arrangement would need to be on commercial terms.
Running a SMSF is complicated, time consuming and requires considerable knowledge about investments. You’ll need to create and document your fund’s investment strategy, record your investments and transactions, and ensure that your fund is adequately diversified to help manage the risks of investing.
It’s also vital that your fund is checked by a qualified auditor each year to ensure it is compliant, as there can be significant penalties for non-compliant funds. AFS offer this service.
If there is a conflict between the trustees of your fund, you’ll need to resolve them privately, as SMSF trustees and members aren’t able to appeal to the Superannuation Complaints Tribunal to resolve disputes. This could result in large legal fees and relationship breakdowns with the other trustees who are often family members or business partners.
Get expert advice
If you think an SMSF might be right for you, it’s important to seek advice. Contact the Venture team, who can help with the right strategy for your retirement savings.
- ATO (2013) Running a Self Managed Super Fund
- ATO (2015) Self Managed Superannuation Fund Statistical Report
Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
Venture Financial Planning Pty Ltd is not a registered tax agent. If you wish to rely on the general tax information contained in this communication to determine your personal tax obligations, we recommend that you seek professional advice from a registered tax agent.
This information has been edited from an article prepared by GWM Adviser Services Limited ABN 96 002 071 749 AFSL 230692, a National Australia Group Company, 105-153 Miller Street, North Sydney NSW 2060 Australia.