Self Managed Super Funds (SMSFs) are a growing, popular and significant sector in Australia’s superannuation industry. The June quarter 2020 saw the highest number of new SMSFs established since 2015/16 and we explain why.
Many of Australia’s superannuants have little understanding what their superannuation balance is or even how their superannuation is performing. For many, superannuation continues to be a great mystery.
One of the key benefits of running an SMSF is you can be more engaged with your superannuation. SMSF trustees are accountable for the running of their fund. As a result of increased attention and engagement SMSFs could outperform other superannuation products.
As a trustee of your own fund, you have complete control over the decisions made in the fund.
SMSFs can invest in traditional investments such as direct shares, international investments, bonds, cash and managed funds. Unlike other superannuation vehicles, SMSF’s provide the ability to invest in direct property or ‘business real property’. SMSFs can even invest in precious metal, collectibles or cryptocurrency.
Members in accumulation mode are subject to 15% tax on capital gains and income earned in the fund.
Members in pension mode enjoy an entirely tax-free environment on balances up to $1.6 million.
Further, by structuring your investment portfolio, you have the ability to access franking credits – enjoying a tax refund from the ATO for any excess imputation credits.
SMSFs have the ability to accept ‘in-specie’ contributions which allows members to not only contribute cash to their SMSF, but also other investments they hold personally such as listed security and ‘business real property’.
For those in the highest income tax bracket (including medicare levy), the benefits of a 15% tax rate in an SMSF is significant reason to establish an SMSF.
You have the ultimate control and flexibility over the payment of pensions as the Trustees have direct control over the bank account.
Unlike some superannuation vehicles, you can move from accumulation mode to pension mode without the need to sell down assets and realise capital gains. SMSF members can run multiple pensions within their fund maximising strategic tax planning opportunities.
SMSFs are able to borrow funds to increase the overall amount for investing within the superannuation environment, which is popular with investors selecting property as an asset within their fund.
SMSFs provide control and flexibility over estate planning, enabling members to ensure investments transfer from members to their beneficiaries in a tax effective manner. Further SMSFs provide the flexibility of splitting contributions between members.
During periods of market volatility some people, naturally, grow concerned when they see their superannuation balance eroding. By knowing exactly how your money is invested and being engaged with your SMSF may give you greater peace of mind.
Many SMSF Trustees enjoy the decision making that comes with running their own fund.
To find out more about if an SMSF is appropriate for you, contact Olivia Long, Managing Director – SMSF.
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