WHO SHOULD HAVE A SELF MANAGED SUPERFUND?

– RAY BOSTELMAN

With the growing disillusionment surrounding the Retail Superannuation sector, Self-Managed Superannuation Funds (SMSFs) are becoming increasingly popular in Australia.

However, just because your retail or industry fund has not performed the way you might like in the last 2 years or so, does not necessarily mean that an SMSF is the right option for you.

• 1. The combined superannuation balances of the potential SMSF members – it is generally accepted that the combined balances should total at least $200,000 in order for the economies of scale to kick-in. This is because SMSFs must pay an accountant to prepare and lodge tax returns, as well as audit the Fund. The larger the balance of the fund, the smaller that these fees become as a percentage of the combined balances.
• 2. The stage of life / investment objectives of the SMSF members – it may not be appropriate to include members in the same Fund that have differing objectives, such as income needs to fund a pension versus accumulating capital growth. Some members may also be willing to take on a much greater amount of risk than other members are comfortable with.
• 3. The time, responsibility and administration burden of running the SMSF – it takes a lot of time and effort to choose, implement and manage your investments, in addition to the compliance requirements of an SMSF. Some people enjoy this, whilst others find it a burden – one option may be to outsource this to external advisers.

There are a number of key advantages of having your own SMSF, which may make this option the right one for you, including:

• 1. If you are a business owner, it is possible to have business premises owned by the SMSF and leased back to the business to generate income for the Fund.
• 2. The Trustees have ultimate control over how the funds are invested and have a thorough understanding of the assets of the Fund.
• 3. Investment choice is wide and includes a number of asset classes that are not always available to the retail member, including direct property, direct shares, art and wine.
• 4. It is possible to gear within your SMSF through the use of instalment warrants – this means that, for example, cash in the fund could be used as the ‘deposit’ for a property that the SMSF could otherwise not afford, with the balance being lent by a 3rd party.
• 5. The Trustees of SMSFs have ultimate control over benefit payments, and can structure these effectively – such as in the case of reversionary pensions.
• 6. It is often a simpler process to implement superannuation strategies that become available as a result of legislative changes – an example being the re-contribution strategy to minimise any tax on superannuation death benefits being directed to non-tax dependents.
• 7. SMSFs can be structured so that the members have clear visibility of the income stream being produced by their superannuation monies in advance of actually accessing these income streams, making retirement planning an easier task.
• 8. Life & Total and Permanent Disability can be held under your SMSF so that a) there is certainty of where the insurance proceeds are directed; and b) your Fund will receive a tax deduction for the premiums

A Self-Managed Super Fund is certainly not for everyone, however there are a number of key advantages that make an SMSF a potentially attractive proposition.

As always, please call to discuss should you wish to explore this path further or have any questions about this article.