Self Managed Super Funds

self managed super fundsWhy investors turn towards self managed super funds?

Self managed superannuation have grown in popularity and for good reasons. The structure of the fund requires trustees to hold monies on behalf of the nominated members or members’ dependants. All self managed super funds are governed by the superannuation trust deed. Section 17A of the Superannuation (Industry) Supervision Act 1993 defines self managed superannuation as funds where:

There are less than five members;
All members are trustees and all trustees must be members;
Trustees are not permitted to be employers of the members (or an associated person), unless they are a relative of the members or business partners who are directors of the employer sponsor; &
Trustees must not receive remuneration for acting in their capacity.

Benefits of self managed super funds (SMSF)

The major self-managed super funds advantages include, but are not limited to the following attributes:

Excess imputation credits from fully franked shares are refundable;
Maximum of 15% tax rate on standard income for complying funds;
Complete control and knowledge of investment decisions and portfolio balance either managed directly or through a financial planner or fund managed;
Flexibility in rebalancing fund portfolio without untimely delay and unnecessary bureaucratic red tapes;
Significant cost savings in compliance and annual administration costs compared to public offer superannuation fund;
Improved tax planning opportunities;
Capital gains tax is 10% for assets held greater than 12 months prior to being sold;
Capital gains tax is 0% for assets sold in the pension phase. Where appropriate, assets that have enjoyed significant capital growth should be sold in the pension phase and not in the accumulation phase; &
0% tax on all standard income derived in the pension phase. This includes, dividends received, interest income, distributions from managed funds and rental income.
Leverage – the most significant self-managed super funds advantage is the ability to borrow. Trustees can now acquire a much larger investment asset than would the case if the fund was prohibited from borrowing. For example, residential investment property was previously not a feasible option due to low fund balances. Self-managed superannuation can now borrow 70-80% through a limited recourse borrowing arrangements (LRBAs), to secure an investment property; &
Transition to retirement – members can now pay themselves an income pension stream at the age of 55, while still remaining in the work force and accepting concessional contributions from their employers.

Some of the major investment options available to self managed superannuation include:

  • Self managed super funds can invest in publicly listed shares;
  • Self managed super funds can invest in interest bearing securities such as debentures and government bonds;
  • Self managed super funds can invest in unit trusts;
  • Self managed super funds can invest in domestic and overseas residential properties;
  • Self managed super funds can invest in derivatives such as options; &
  • Self managed super funds can invest in foreign currencies.

While all the above investment options are available, trustees are advised to improve on their self-education, or seek independent financial advice.

Interesting Topics:

> Taxation matters




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