What is a Self Managed Superannuation Fund (SMSF)?
A SMSF is a small superannuation fund established for 1-4 people with the fund being controlled by trustees/directors who are also the members. Control is kept in the hands of the members, and the members decide how the fund will operate and what investments the fund will invest in. The advantages of managing a SMSF include:
- Control -- An SMSF provides maximum control over your superannuation assets and allows you the flexibility to decide how your funds are invested and how the fund is to operate.
- Investment Choice -- An SMSF can be structured to meet the specific investment needs of members and greater control over investment strategies. The fund can invest in a wide range of investments including property, shares, cash or any other assets that suits the investment objectives of the fund (provided it meets the sole purpose test). Access to investment gearing opportunities also exist.
- Tax Concessions -- Investing in an SMSF has tax advantages that make superannuation a powerful wealth creation strategy.
- The concessional 15% tax rate applies to income of the fund, including contributions for which the tax payer has claimed a tax deduction
- Realised capital gains on investments held for more than 12 months are taxed at an effective rate of 10%
- Tax can be lowered through the use of franking credits and the offsetting of capital losses
- Concessionally taxed end benefit, including pension benefits
An SMSF is best suited to those people looking for maximum control over their superannuation assets, but are also willing to accept certain regulatory responsibilities placed on trustees of SMSFs and to work at managing their investments. Self managed superannuation funds offer many advantages to small business owners and high net worth individuals. They are usually most cost effective when assets exceed $200,000. This is due to the fact that SMSFs generally have a fixed administration cost as opposed to industry or retail super funds where the administration costs are a percentage of the funds under management. With SMSFs now able to use investment gearing, the miminum amount required to establish a SMSF may be less than $200,000.
Self managed superannuation funds must be maintained for the purpose of providing benefits to members upon retirement, or to their dependants in the case of a member’s death before retirement. Your SMSF can accept employer and personal contributions, including member non-concessional contributions, subject to contribution limits and restrictions.
The investments an SMSF can invest in are very broad. All investments held by the fund, must be purchased with the intention of providing benefits in retirement for the members and are subject to the fund’s investment strategy. There are certain regulatory limitations placed on SMSF, such as borrowing to invest in assets, acquiring assets from related parties or investing in in-house assets.
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