Self Managed Super Funds – Explained

Self Managed Super Funds – Explained

As most of us know saving for superannuation is a government requirment, its an investment in your retirement. Starting a Self Managed Super fund (SMSF) means taking control of your investment in your retirement. You accumulate superannuation by paying it in yourself, claiming a business deduction from your business paying in or from employers paying 9% of your gross wages into a super fund of your choice… this can be to a “retail fund” (you pay someone else to manage your super) or paid into your SMSF (enabling you to manage your own investments)  

The income depostied are then invested in assets to provide benefits to members when they retire or meet a condition of release.  All superannuation accounts carry a reduced tax scale of 15% so this can be very attractive when it comes to high income earners and salary sacrificing strateges for individuals and business owners.  

A Self Managed Superannuation Fund must have less than five members. From 1st July 1999, responsibility for SMSFs has been with the Australian Taxation Office (ATO). The trustees (you) control the investments and are generally responsible for the SMSF’s administration and its compliance with the law this includes having an investment strategy and preparing financial statement and a tax return and audit each financial year. Evolution Accountants can help administer these responsibiliteis on your behalf so call us today…  

A SMSF is controlled by a Trust deed. This deed sets out the rules the SMSF has to follow. It also sets out the obligations and responsibilities of the people/members connected to the SMSF.   

SMSF can be set up by people of all ages and from all walks of life. Younger people who want to use the SMSF as part of their overall investing plan are setting themselves up earlier, for the later life spoils and they are becoming increasingly common. The list of people setting up SMSFs typically includes:

  1. Self-employed professionals
  2. Employees, particularly those on higher salaries
  3. People who want to manage their own investments
  4. People who run businesses through companies or trusts as they can reduce their business taxes by paying more super

Who should setup a SMSF—It boils down to more that just a number crunch… here’s what you need to consider

  •  Do you have the capacity to manage your own fund or are you willing to have professionals help you?
  • Are you looking to use a SMSF as an overall strategy to build your personal wealth?
  • Can you benefit from engineering a strategy for your business so that your SMSF contributions save your business tax?
  • We have clients who started a SMSF with $30k in super
  • ideally tho $100,000 in super is generally accepted and indoresd by the Australian Society of CPAs as the ‘break even point’ for a SMSF.

Some people use SMSFs with less than $100,000, confident that over time the enhanced returns with a view to increasing contributions over time, this will make up for any cost inefficiencies in the early days. Where the member faces tax of 30% or 45% (which is nearly everyone) any investment will perform better in a SMSF.

Why do assets preform better in a SMSF? 

  1.  The tax deduction for contributions in as SMSF is 15% not 30% or 45% so more money can be invested upfront and the compounding aspects of that till retirement could be astronomical
  2. More money can be invested, investment earnings are higher
  3. Income made in the SMSF is taxed at 15% (and sometimes 0%) and capital gains are taxed at 10% (and sometimes 0%), so the after tax rate of return on the investment is always greater than for a 30% or 45% taxpayer.

The government is replacing the age pension with a system of private pensions and or private suppliemnts from your super. It is a mathematical certainty that an investment in a superannuation environment will do better than in a non superannuation environment.

Setting up a SMSF means you don’t have to wait for months after 30th June to see how your investment preformed… not to mension its too late if your fund looses value… in 2011 calender year “retail” super funds lost 11.1% of their value…

SMSFs can create synergies with the member’s other investment and business activities. The SMSF’s investment strategy should be prepared as part of an overall investment strategy reflecting the member’s attitudes and overall financial risk profile. this means you can engineer your financial future and take back control.

Keep in mind SMSF are generally protected from businesses and or persoanal bankruptcies but you should  always consider your life insurance needs and update your will as part of your estate planning.

SMSFs do not have to take up a great deal of time. Some people get by with just a few hours a year. They select quality blue chip shares and never sell or buy a investment property. Keeping and holding assets means lower administration costs since there are fewer transactions to record. This strategy is common with younger people with smaller funds and larger work and family commitments. Other people enjoy spending a few hours a week day trading shares, or in some cases, even a few hours a day, attending to their SMSF’s investments.

Why setup a SMSF

  1. Control over the investment
  2. SMSF assets are protected from bankruptcy
  3. Control over the timing income: capital gains and, in many cases, other types of income, can be deferred to a year when the SMSF pays nil tax
  4. Retirement benefits for spouses and children.
  5. SMSFs can be even used to create retirement funds for spouses and children
  6. Tax-effective savings. The deduction for contributions and the low rate of tax (15%, 10% or nil %)
  7. Tax deductible life insurance premiums. Running life insurance cover through a SMSF means the cost of the cover is effectively halved.

We hope that the above summary helps you to understand the advantages and some of the details relating to SMSFs.

Call Evolution Accountants 1300 506 664 or email  today to start Engineering your fianancial life… younger, older, business owner, employee, single parent, retiring, … take control and get informed…

About the Author

Leave a Reply


    This is the deafult sidebar, add some widgets to change it.