MAXIMISING BENEFITS OF A SELF MANAGED SUPER FUND (SMSF)

David Siostrom offers practical and comprehensive advice to anyone who has a SMSF and wants to be sure that they are doing the best they can – kind of like a coach or personal trainer.

But first, why would you want a SMSF?

The most common reason for choosing to establish a SMSF is investment flexibility. Many people ponder what the point is of having an SMSF if you only want to own cash, shares or managed funds.

To highlight a few reasons why a SMSF should be considered in addition to investment flexibility, an SMSF gives you:

  • The ability to upgrade the trust deed at your discretion, meaning you can immediately take advantage of strategic opportunities arising from changes in legislation.
  • Reduced costs of managing your superannuation depending on your account balance, as most other superannuation funds charge on a percentage basis, whereby SMSF costs are generally fixed
  • Provide insurance to members which can result in significant tax benefits for the SMS
  • Potential for huge tax deductions available for surviving members of the SMSF upon the death of a member
  • Make benefit payments to pension members at any time within their limits – not restricted to lengthy delays and static payment dates of other superannuation funds

This is not to mention much greater control over your estate plan in relation to tax implications upon your death and certainty around beneficiaries receiving what you intended. Also more control and tax efficiencies surrounding inter-generational transfer of wealth.

When it comes to your ability to choose the life insurer for policies held within superannuation, you have full control, rather than being restricted to the life insurer used by a particular fund.

But, for those of you that like to be intimately involved with your superannuation savings, a SMSF opens up a world of opportunities. Buying property is one such opportunity for a SMSF, which may involve borrowing to purchase of your own business premises using a “limited recourse loan”. Click here for more information. Alternatively, collectible items such as artwork can be purchased by the fund (special conditions apply for use & storage)

Having said that, peace of mind, control over your savings and management of your tax position should be considered just as attractive as investment flexibility.

Meanwhile, please see my video at top right, it provides a short introduction to SMSFs in just 2.07 minutes, so click to play it.

But remember, this all comes at the cost of taking responsibility as trustee and that means you need to know the rules and comply! If you get it wrong, it will be a massive problem. An example is renovating of property owned by a fund, read my comments on that here.

To learn more about SMSFs including steps to set up a fund and trustee responsibilities, click here to download our plain English Start Up Guide.

Some popular SMSF topics are listed below, click on links (where available) to this specific information if relevant to you or simply contact me for help.

If you are an SMSF trustee (fund owner) you may now be thinking of what to do next? Well, you could start with an easy self-assessment.

I created a practical tool called an “SMSF Health Check” that identifies the gaps that may be preventing you from maximising your SMSF performance.

You can download the toolcomplete it then email to me, or simply complete it on this website here.

Once I receive your data I will review your answers and respond with my thoughts within 48 hours at no cost or obligation to you. Alternatively, to post me a specific question or issue on SMSF, just click here and I will respond. You can also arrange a discussion in my office or via Skype or phone. 

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SMSF: BUYING PROPERTY TAX-EFFECTIVELY

Self managed super funds (SMSFs) can invest directly into residential or business property.

The tax benefits that drive this strategy are:

  • The ability to fund the loan from gross income.
  • Income is taxed at a maximum rate of 15%.
  • Capital gains realised upon the sale of the asset are taxed at a maximum rate of 10% if the asset has been owned for 12 months or more.
  • When in the “pension” phase, no tax may apply to income or earnings from age 60.

Where a loan is required to fund the purchase, a “limited recourse borrowing arrangement” must be established that involves the asset being held in a “bare trust” to “quarantine” potential capital losses from the other assets of the SMSF. These arrangements are complex and consequently good advice is required to avoid costly penalties.

Note:

  • The age, risk profile, investment assets, income sources, personal insurances and objectives of the members must be considered before adopting the strategy.
  • The strategy must be consistent with the SMSF’s investment strategy.
  • The SMSF cannot acquire a residential property from a member or ‘related party”.
  • Nor can a “related party” occupy or utilise the property.
  • Insurance must be considered for all members and to provide the liquid funds to pay benefits or repay the loan.
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RISKS IN SMSF PROPERTY RENOVATION

 SMSF Trustees who intend to renovate their Fund’s real estate need to be aware of a few traps in addition to the restrictions surrounding alterations to”geared” property.

Essentially, the regulations may be breached when:

  • Borrowings are used to fund improvements (not allowed).
  • The trustee provides services to the fund for which they do not hold qualifications and licenses and do not normally provide these services to the public and
  • Labour and materials are acquired from the trustee, and moreover, when these are not provided at commercial rates.
  • The tennant makes improvements to the premises which is not returned to its original character prior to a sale or at the end of the tenancy.

In these situations, the tax office may consider that prohibited assets have been acquired from members and/or count these as contributions. 

Solution: We strongly advise that clients seek legal advice for the drafting of the lease, employ arms length trades people and seek advice before doing renovations or selling the property.

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