Our experience shows that many people seem to think that superannuation is something that doesn’t need much attention until retirement comes knocking. You may know there is the opportunity to top it up with additional contributions to increase what your employer already chips in. Some people also park one-off payments into it to beef up the total. Most often though, we see that it’s generally a set and forget asset. Sound Familiar? Well, if handled with care your super can actually be a dynamic asset. You can take charge of your financial future and control your super through a Self-Managed Super Fund (SMSF).
As of June 2021, according to the ATO, there were nearly 600,000 SMSFs in Australia that had a combined total of 1.1 million members and accounted for $822 billion in assets. While less than 5% of Australia’s population hold SMSFs, they account for about 25% of the $3.3 trillion invested in superannuation. It is a popular approach for people who wish to take charge of their retirement plans.
While SMSF might have the word ‘self’ in the title, it needn’t be a solitary experience. With the right financial advice from Landen you can shape your own fortune, while having an expert team provide a helping hand along the way.
What is the difference between SMSF’s and industry or retail super funds?
As the name suggests, a SMSF is a private super fund that you manage, unlike industry and retail super funds. The main distinction between the types of funds is that the members of a SMSF (there can be up to six) are also the trustees of the fund and they run it for their own retirement benefit. These members, as trustees are responsible for complying with superannuation and tax laws, and for the control of how and where their super is invested.
Another major difference between a traditional super fund and an SMSF is the ability for the latter to use lending to purchase investments, such as property.
Why would I manage my own super, rather than leaving it in a traditional fund?
The main reason is – control. When you’re in charge of your own super it means you play a role in your own wealth creation. You can use leverage in the fund, harness potential savings in costs, take advantage of low capital gains tax based on the super tax rates, plus you can link with up to five other members to pool your funds.
Another reason many people chose SMSFs is the ability to invest in property. Investors enjoy choosing what property to invest in and having some control on who to rent it out to (although, you can’t lease it to direct family members). With a standard super fund, this isn’t possible. When you buy an investment property through an SMSF, your fund can earn income from the rental payments while also reaping the rewards of the capital gains on the property value. You could also invest in other assets such as art, stamps and even gold.
What are the minimum requirements to create an SMSF?
Although each case should be considered independently with expert advice and thorough research, ASIC now suggests a SMSF should have a combined member balance of around $500,000 to be in the client’s best interests. This number has increased considerably over time with inflation and the changing economic environment. There is no hard and fast rule, but it’s a good benchmark to consider whether you’re ready to take the SMSF path.
Ultimately, an SMSF should be able to effectively demonstrate that the member’s best interests are being met, and they are likely to be in a better financial position as a result of implementing the strategy than without it.
What is legally required to manage your own super fund?
At the end of the day, a SMSF needs to satisfy the ‘sole purpose’ test. This means it must be set up and maintained for the ‘sole purpose’ of providing retirement benefits to its members (or their dependents if a fund member dies before retiring).
It also needs a trust deed, and a trustee who is an Australian resident (either a minimum of two individuals, or a corporate trustee). The trustees must not permanently leave Australia or have the balance of control outside of the country for more than two years.
Importantly, there needs to be an investment strategy and the fund must comply with annual accounts, independent annual audits, have its ASIC fees paid up, and follow the SIS Act.
Ensuring an SMSF is set up correctly so it’s eligible for tax concessions and can receive contributions isn’t always a user-friendly process, so anyone considering setting one up should consider appointing professionals to assist.
If you are considering moving to a SMSF, speak to our expert team at Landen who can help and guide you through this journey. Call 1300 526 336 or click here.