Self-Managed Super Funds (SMSF) were a buzz word for many years and were booming in popularity at one point. However, they are typically best used in specific circumstances and are not for everyone.
Self-Managed Super Funds (SMSF) were a buzz word for many years and were booming in popularity at one point. However, they are typically best used in specific circumstances and are not for everyone. As an adviser, I have wound more up than I have started! Super platforms called Wrap Accounts have access to term deposits, shares, managed funds and ETF’s for those looking for control, flexibility and diversification with their investments.
So, when would one be useful……
Investing in Direct Property
You can invest and buy direct property in any form via a SMSF. The drawback is that the property must not be used for a personal or current day benefit, so no holidaying at the beach in your SMSF property!
Investing in a Business Property
A SMSF can be useful tool for someone who owns a business. Investing in business real property is the one exception where you can use a super asset for a current day benefit.
Your existing retirement savings can be used for the purchase of a business property, as well as being able to borrow via your SMSF. A market rate of return on rental income must be paid by the business to the SMSF. The rental income is a tax deduction to the business, the rent paid to the super fund is taxed at a lower rate and most importantly, you are paying rent to your retirement savings and not to someone else.
Estate Planning – Blended Families
If an individual were to have complex blended family where their will may be contested, a SMSF can be an excellent option as the proceeds do not form part of an individual’s estate. There is also no access to the superannuation complaints tribunal for SMSF, further protecting your legacy.
What are the drawbacks……
Cost
Until you start to accumulate a significant amount of super, a SMSF is more a costly option due to the need to complete tax return and financials each year. As a general rule, running a SMSF is not a cost-efficient option for people with a small super balance.
Administration & Responsibility
A SMSF comes with the burden of having to keep all your paperwork up to date and your fund compliant with the regulations . Furthermore, there is no one else responsible other than you if you breach the rules that govern an SMSF. Employing the services of a financial adviser can help you navigate this web of complexity.
Conclusions
While a SMSF is definitely not for everyone, they definitely have their place and are powerful tools when used in the right circumstances.
This article is general in nature and not intended to be used as personal advice. We recommend you seek personal financial advice when commencing, operating or winding and SMSF
Contact Prosperity Wealth + Advice to discuss how we can help you with your superannuation and SMSF queries.
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