Benefits of a SMSF

For an ever increasing number of Australian’s looking for greater control and value from their superannuation, the Self Managed Super Fund (SMSF) appears to be the retirement vehicle of choice. There are now in excess of 500,000 SMSF’s in existence, with more than 1,000,000 members and rising fast. More and more people are discovering the benefits of a SMSF.

The key driver of this growth has been the desire of individuals to gain greater control over the investment assets of their fund, rather than leave it to fund managers. However, what is not widely known are the other key benefits of a self managed superfund that along with investment choice, makes Self Managed Superannuation such a powerful retirement vehicle. Some of the benefits of a SMSF include:

Investment Choice SMSF Benefits

The key driver of SMSFs has always been investment control, and the much wider investment choice (such as direct shares, direct property, term deposits, hedge funds, art work and other investment types) that trustees have compared to commercial super funds. However, the real SMSF benefits can be seen not just in “choice”, but in the ability to have more sophisticated investment strategies working for you. For example within equities, being able to access derivative based strategies such as ‘covered calls’, or hedging via CFD’s can be a very effective way to attempt to enhance returns whilst simultaneously attempting to reduce volatility. This is particularly useful in difficult or falling markets. Other examples include small business owners leasing their business real property (property used by their business) from their SMSF, borrowing to invest via instalment warrants, direct property investments, and others.

Tax Control SMSF Benefits

One of the major benefits of self managed super funds is the control and flexibility that trustees have over the tax position of the fund. Through either strategic investment planning (such as maximising franking credits) or internal structuring, tax can be significantly reduced (and in some cases, totally eliminated with refunds paid from the ATO), particularly for those in retirement. There is also great flexibility in terms of dealing with the tax liabilities of the fund, as the fund only does one tax return even though there can be up to 4 different members in the fund. There is even a strategy that exists whereby other current and future members can get SMSF benefits from huge tax deductions for future years on the death of a member.

Estate Planning SMSF Benefits

There are excellent estate planning benefits of a SMSF, and the fact that a ‘Will’ does not necessarily control your SMSF benefits. The key here is that you can craft a strategy to accomplish exactly what you are after, with exceptional tax efficiency. This includes being able to leave tax advantaged (sometimes tax free) income streams to dependant beneficiaries with control around when they receive a lump sum, and to effectively look after child beneficiaries in a way that no other structure can match. Further to this, SMSFs can make binding nominations that do not lapse, unlike commercial super funds which have to be continually updated. When you start to understand some of the powerful strategies that can be employed in a SMSF, especially from an estate planning perspective, it is easy to see the benefits of a SMSF and why it starts to become viewed as a tax advantaged intergenerational wealth vehicle.

Borrowing SMSF Benefits

Under a specific arrangement superannuation funds are allowed to borrow. These rules can be fully utilised by SMSFs, however they have limited application in large commercial super funds. This ties in with the “Investment choice” SMSF benefits mentioned above, whereby this now makes it much easier for trustees to acquire direct property in their SMSF as property is usually a big ticket item, and generally requires an element of borrowing, highlighting one of the distinct benefits of self managed super funds.

Cost SMSF Benefits

For many people, the cost of running a SMSF can be significantly lower than that of a retail, industry or commercial super fund, highlighting one of the key benefits of a SMSF. The main costs for a SMSF is the completion of the annual administration and audit requirements of the fund. There is no industry standard in terms of costs, however if we look at the average cost of an average fund, then the cost will be around $2,000 to $2,500 per annum. Supervision SMSF has been able to lower these costs with total administration, audit and compliance costs starting from as little as $990 per annum. Commercial super funds on the other hand tend to charge as a percentage of your fund balance, with a range typically at 1% to 2% pa depending on the fund and underlying fund managers used. So if you’ve got a flat cost of around $2,000 per annum for your SMSF, then the more money your SMSF has, the lower the percentage cost will be. For example, if you’ve got $300,000 in your SMSF (and remember, that can be made up of up to 4 members’ balances combined) and you pay $2,000 per annum for annual administration, audit and compliance then your cost is 0.66% pa. Compared to most (if not all) commercial super funds, this is very cost effective. That is one of the major benefits of a SMSF with Supervision.

Pension Planning SMSF Benefits

For those members nearing pension phase, the SMSF allows the most seamless transition from accumulation into flexible income streams. As with all Super funds, the ability to take tax free income streams on retirement is a big incentive to stay within the superannuation environment, and as seen by the above benefits of a self managed super fund, the SMSF offers a lot of flexibility in terms of how you go about it.

Asset Protection SMSF Benefits

The Asset protection afforded in a SMSF is crucial in a world where litigation and bankruptcy has become commonplace. In either of these events, your SMSF benefits are protected. For example the business owner who owns the property where the business is run from in his own name is at far greater risk of losing that property should the business face bankruptcy or subject to litigation. In the instance of the SMSF owning that same property there is virtually no risk that creditors or litigants could pursue a SMSF for this same asset. Once you begin to learn its intricacies, you can start to understand why the SMSF is such a popular and effective retirement vehicle, however you must also be willing to take on the significant responsibilities that being a SMSF trustee entails. If you are, then the potential for better returns, tax control, effective wealth transfer, asset protection, and peace of mind are a potent combination, which can take the quality and security of your retirement to a whole new level.

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