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Self Managed Superannuation Funds: What are the Advantages?

What are the Advantages?

Considerations Background and Explanation
1. Management Control and Flexibility An SMSF provides superior management control and flexibility over your superannuation entitlements. As you are the Trustee of your SMSF you have effective control over the operations, investment selection, and overall management of the SMSF, even if some of these activities are outsourced. 

You are able to implement specific investment strategies that are tailored to your requirements and needs. Whilst there are set regulations and investment criteria that must be considered and adhered to, you essentially have control over the underlying investment selection of your superannuation entitlements.
Your SMSF could also make a larger investment in assets such as shares and property by using cash in your fund and borrow the rest.
2. More Investment Choice An SMSF is able to invest in most assets, similar to any other investors. Shares, commercial property, property syndicates, developments, residential property, managed funds, bonds, cash on deposit, mortgages and term deposits are some examples.
Further investment examples are artwork, antiques and other collectible assets, as long as they provide for the retirement of the members.
3. Using An SMSF in your Overall Investment Strategy An SMSF may, due to its tax advantage status, enable you to undertake different strategies outside of Super. Super may be invested in capital growth oriented assets to utilize the 10 per cent Capital Gains Tax concession while investing in income providing assets to assist your current needs. Using a personal gearing strategy (out side of your Super) can further enhance this approach. By using a gearing strategy you may receive a full tax deduction on the interest you pay and are only taxed 50 per cent of the nominal gain if the assets are held for 12 months or more.
4. One Fund for the Family You can set up a fund for yourself and up to three other people and consolidate your super balances. This could enable you to invest in assets of higher value than if you set up a fund with fewer members, achieve greater estate planning flexibility, and reduce fund costs.
5. No Contribution Fees When you make superannuation contributions to your SMSF you do not pay any contribution fees. Likewise, you do not pay any exit fees when you withdraw funds from the SMSF. Whilst a SMSF will pay investment fees for the actual investment of the superannuation entitlements, there are no contribution fees payable. This can result in a reasonably significant saving for your superannuation.
6. Tax Savings With SMSFs you can take greater control over the timing of tax events such as starting a pension without triggering capital gains tax, when your superannuation assets move into pension phase. You may also have the option of transferring assets that you own into your SMSF. 

Other tax advantages include:

  • The concessional 15 per cent tax rate on earnings and contributions claimed as a tax deduction by you personally or by your business
  • The effective 10 per cent tax rate on capital gains made on investments held for more than 12 months
  • Rebates on contributions made on behalf of a spouse
  • A concessionally taxed end benefit
  • Paying Life insurance premiums through your SMSF (which are generally tax deductible to the Super fund)
7. Flexibility When Receiving A Pension The advantage of receiving a pension from your superfund is that a part of your pension is typically tax-free. The ATO recognises that as you have used your own funds to contribute to your superannuation fund, your investment is returned to you over the life of the pension. 

Once the superannuation fund is paying a pension, the fund becomes exempt from tax. As such, all income and capital gains that are made by the fund are not subject to tax. You pay tax when you draw out your superannuation pension each year.

When you draw a pension from your superannuation fund, you can use an allocated pension. This means that your superannuation is allocated over your life expectancy. You are required to draw down a minimum pension and a maximum pension each year. You can also draw a lump sum, or a combination of the two. Your circumstances at the time of withdrawing your pension need to be considered before withdrawing any funds either as a pension of a lump sum.

The management control and flexibility generated through a SMSF continues to provide benefits when you commence drawing a pension. A SMSF provides flexibility and control over the investments that are utilised to provide a pension, and the manner in which the pension is drawn.

From 1 July 2007, if you are over the age of 60, any pension that you draw from superannuation is tax-free. As a result, there is more reason to keep your options flexible and enable you to take a tax-free pension upon retirement. New announcements were made in the May 2016 Federal Budget that may limit the value of assets held in your pension account to $1.6m. This is not yet law, so may not be passed.
8. Greater Estate Planning Certainty and Flexibility You can nominate who you would like to receive your super when you pass away without having to meet some of the constraints that apply to other super funds.

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