Self Managed Super Fund (SMSF) Things need to know - SWOT Consulting Sydney Australia

Self Managed Super Fund
"Things need to know"

Benefits and drawbacks of Self Managed Super Fund (SMSF)

Self-managed superannuation funds (SMSFs) are the fastest-growing fund type in Australia. The report from ATO indicates as on March 2016, there were total 572,434 SMSFs representing 1,085,286 members with total net assets of over $570 billions.

However, it should be noted that SMSFs aren’t for everyone. Administering your own super fund can be complex and as a trustee or director of the trustee company, you need to comply with many legal obligations.

Before switching to an SMSF it’s worth asking

What is the your objective for switching to SMSF?
Do you have the time and skills to run your own super fund?
Will the benefits be worth the costs?
How will switching affect your current super benefits, services and fees?

SMSF can have a maximum of four members, generally all of whom act as trustees and are responsible for running the fund, investing assets, paying benefits and meeting compliance requirements.

Benefits

Control over design and operation
The great advantage of an SMSF is that you’re in control. Asset allocation, tax strategies, insurance options and retirement planning – it’s all up to you.

Investments
SMSF offers great flexibility in investment, enabling you to invest in many different assets which may not necessarily be available through other super funds, such as direct shares, specialised managed funds and property. You can decide on your fund investment, as long as you comply with regulations and the fund is operated for the purpose of building retirement wealth (also known as the sole purpose test).

When planning an investment strategy, you need to consider your objectives, time horizon, risk tolerance and diversification. You can invest in your preferred combination of assets, across all asset classes – cash, fixed interest, property, Australian shares and international shares.

Tax benefit
A significant benefit of an SMSF is the control and flexibility trustees have over the tax position of the fund. In particular, as trustees move towards the retirement phase, there are a number of financial planning strategies they can use to help reduce their overall tax burden.

Cost savings
Generally, the cost of managing a self-managed superannuation fund does not increase as your super investment grows. So the greater the account balance, the more cost effective the SMSF is. Also, SMSF's do not have the same prudential regulation and do not have to be licensed.

Advantages for small business
Typically many small business owners are able to utilise super rules which permit SMSF's to invest in business real property either directly or through non geared unit trusts or warrant trusts and lease back the property to a related party.

The fund can go on after your death
The fund can provide benefits to you, your spouse and even your children. This means that the fund can continue after your death which can allow for many estate planning benefits.

Drawbacks

Administration
Most people find it hard enough keeping up with their current super, let alone running their own fund. When establishing the fund, you need to draw up a trust deed setting out trustee powers, benefit payments and exit strategy. You also need to create a separate bank account, keep accurate paperwork, produce annual operating statements, keep copies of annual returns and appoint an approved auditor.

Many SMSF owners choose to outsource some administration functions to reduce the amount of paperwork they need to complete themselves.

Costs
SMSFs can be expensive, with the annual costs of running a medium-sized fund estimated at $2,000. Your fund needs to be substantial enough to make this worthwhile. An SMSF is usually not advisable if the fund assets are likely to be less than $200,000.

Optimise benefits from SMSF

With greater control comes greater responsibility, but the right financial advice and support can make it easier. Fortunately there is more help out there than ever before for Australia’s growing number of SMSF enthusiasts.

Outsourcing allows you to have access to a unlimited range of skills without having to hire someone with the required skills. Need professional team to manage a process but you don’t have the required professionals in-house? Outsource it!