What are the SMSF benefits of controlling your superannuation?
Self managed super funds are the vehicles of choice for wealth creation. The SMSF benefits that go with controlling your own superannuation far exceed that of retail or industry super funds. Listed below are some of the advantages SMSF provide for investors who are prepared to spend some time learning and controlling their own financial future:
Compounded Returns On Investment – An investor will have more money to invest with at the start of the investment life, and this will translate into a higher balance over the lifecycle. Spending time in the market is crucial;
Lower Tax Rate – The fund’s tax rate is 15% during accumulation phase, 10% on realized capital gain and 0% in pension phase. This creates tax planning opportunities. Any investments realized (sold) in pension phase attracts no taxation. These generous tax concessions are government policies designed to encourage retirees to become less reliant on the old age pension. The same identical investment will always provide a higher return in self managed super funds environment than outside of superannuation;
Improved Decision Making – with self managed superannuation, members do not have to wait until 30 June each financial year to discover how their investment is performing, or what it has been invested in. Most of the information is available on a daily basis. A multitude of daily reports are made available by discount online broker. Decision making on rebalancing an investment portfolio is made quicker when information is readily available;
Asset Protection – all investments held within the fund are protected from bankruptcy. This means that members balance are protected, should bankruptcy proceedings be brought against a certain trustee;
Tax Free Death Benefits – the majority of eligible termination payments (ETP) paid to a deceased member’s dependants (being children) are tax free in the dependant’s hands. This applies to all superannuation entities. However, self-managed super funds provide more tax planning potential and more control as they are often under the direction and guidance of the deceased member’s nearest relatives;
Capital Gains Tax Savings – most investors are aware the tax rate on income inside super funds is 15%, and 10% on capital gains for investments held longer than 12 months. This means that assets held within self-managed super funds will always outperform investments held under an investor’s personal name. Moreover, income is taxed at 0% where an asset is used to pay a pension. Capital gains tax only applies in the year the asset is sold, so trustees are provided with the opportunity to defer selling an asset until such time it is deemed appropriate;
Transition to retirement – a pension can be commenced at age 55 without the member having to leave work; &
Ethical Investments – trustees have the option of holding investments which they believe are ethical. They can draft the investment strategy such that only conscionable investments are made or that only socially advanced investments are considered.
Other SMSF Benefits
- Life insurance premium – paid through self-managed super funds is tax deductible. This is the most cost effective way to organizing life insurance premium, and can halve the cost of the insurance cover. The taxation benefits derived from deductible premiums more than covers the annual administration cost of establishing self-managed super funds;
|Type of Policy||Available Deduction|
|Death or Disability Premium||100%|
|Whole of Life Policy||30%|
- Rollover of business assets – family businesses held in companies and trusts can roll over taxable capital gains on the sale of business assets into self-managed super funds. Businesses are often the main retirement asset for many small family business and special provisions are available to relieve capital gains tax. Conditions apply and expert advice should be sought; &
- Control over investments – Self employed members of the community and people from a professional background often seek greater control and security over their own financial affairs.
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