7 Benefits of Self-Managed Superannuation Fund (SMSF)

January 20, 2021    Smsfservices Perth

The Australian population is now leaning towards the benefits of a Self-managed Superannuation fund. The trend is evident from the statistics available up to June 2019, where the total number of SMSFs functioning reached 581,231 which is about 15% more than the number of 5 years. The number of trustees allowed is one to four, however, they must also be the trustees of that particular fund.

The Conditions Of SMSF Handling

Unlike other funds where a proper body keeps track of the financial details, SMSF requires the members of the fund, or trustees, to take upon the responsibilities related to that particular fund. The duties include establishing compliance with the related financial law, checking the minimum balance, investing the fund, and generating reports and other documents for the appropriate declaration. To ensure that all the factors of the SMSF setup process are completed successfully, it is better to consult a professional financial advisor. They are very good at handling all the necessary actions and providing the required cues for the activities needed.

The Benefits of SMSF

There are several advantages of setting up and running an SMSF apart from the obvious ones. Although most SMSF accountants will have to look upon the different guidelines and conditions of the particular funds, there are some benefits associated with an SMSF fund listed as:

  1. Choice of investment

A major benefit of an SMSF is the control of the area of investment and the amount exercised by a trustee compared to industry and retail super funds. The area of an investment may range from residential and commercial property, collectibles, term deposits, and direct shares. The trustee will also have access to the derivatives to offer subsequent protection or hedging your portfolio risk. For this reason, SMSFs are recommended for small business owners; in which the business property owned by the SMSFs leased back to the business itself. The model provides a steady income for the business itself and liberates any capital for business growth and security of lease.

  1. Power to borrow funds

According to the prevailing rules of the SMSFs, the members can now purchase large solo assets like different commercial properties normally out of their reach. Usually, a constrained resource loan can be obtained up to 60%-70% of the purchase price of the property, excluding the legal duties, stamp charges, etc.

However, there are several rules in this regard to follow. Some of them are:

  • Trustees or their relatives cannot use Domestic investment possessions bought through SMSF funds for residential purposes.
  • Borrowed funds can be utilised for asset preservation but not to develop a property; which means the trustees cannot buy land for building a property on it afterwards. Besides, the trustees cannot purchase a development site and develop it afterwards, or acquire an already built household and rebuild it after demolishing.
  1. Reduction of taxes

In addition to distinct benefits of super funds, most other superannuation funds provide the capacity to receive a pension, free from taxes, as a profit stream upon retreat. An SMSF also provides more elasticity than any other retirement structure regarding the contributions, the scheduling of contributions, distributing incomes to particular members, and executing ‘reserves’.

  1. Control of Taxes

Taxes can be reduced by several ways from ATO, namely; timing and structuring pensions, orienting investment methods to operate the concessional tax treatment, pursuing franking credits, etc. It also enables the claiming of excess credits from most of the retirement phase client’s refunds.

SMSFs also provides flexibility when the taxable liabilities of the funds are adjusted, as it can have a single tax return despite having a maximum of four members for the fund and each of them can have multiple pension accounts. So, if the fund has one or more members who have left their working days and are now paying 0% tax, advantages can be achieved by assigning incomes from members who are still working and paying a 15% tax on their earnings.

  1. Payment of life insurance

Life insurances can be paid through an SMSF. The types of insurances include life insurance, Total and Permanent Disability (TPD) insurance and Income Protection insurance. This insurance cover can be like an ongoing industry or retail fund. It is known as “Group Insurance” and has a set of rules equal for everyone. Its terms can also be changed or cancelled by the regulatory authority at any time without any consent from its beneficiaries.

In contrast, personal insurance customised for your individual needs is known as a “guaranteed renewable”, which allows the insurer to continue the coverage of the plan as long as the premiums are paid on time.

  1. Minimising transaction costs

The movement from the accumulation phase to the pension phase is seamless for an SMSF, as there is no need to sell down assets and getting charged for the capital gains tax and other transaction costs. The trustee(s) need to preserve the investments and draw on the balance of the superannuation funds as an income. SMSF can reduce the associated costs like brokerage, buy/sell costs, and Capital Gains Tax.

  1. Protection of Assets

SMSF can serve as a structure that saves its members from legal troubles and possible bankruptcy. Even if it occurs, the retirement benefits will be protected from the creditors. For example, if a business venture fails, the owners can show their superannuation fund earnings as their sole remaining asset. However, this balance cannot be used to bolster a struggling business.

Utilising the advantages

According to the recent statistics, the total amount of funds utilised in SMSF amounts to $676 billion, which is 25% of the 2.7 trillion invested in superannuation. The investment is significantly more than the $558 billion fund investment in retail. With all these financial uplift, the practice of opening and running an SMSF is going on the rise. To utilise the benefits of the particular SMSF in play, it is better to know about the conditions of the particular fund.

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