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Self Managed Super Funds

Self Managed Super Funds – Much more than an Investment (so what is all the fuss about?)

Give yourself more controlThe reality is that for many Australians, superannuation tax concessions encourage additional voluntary contributions into super (growing the pool of self funded retirees and relieving the public welfare system). It’s the discouraging problem of having your money locked up until you retire that tax concessions aim to overcome. That’s why superannuation was tax free until the Hawke government tax reforms in 1988, and it’s why concessional tax rates were a core part of the introduction of super taxes then. More recently, with the advent of the Self Managed Superannuation Fund (“SMSF”) regime, Australians have been able to enhance their superannuation experience by tailoring their investments to suit their specific needs and aspirations.

If you listened to the Government and Treasury you’d be forgiven for thinking that SMSF’s were little more than tax rorts for the rich, and that the tax rates available for all superannuation (including SMSF) did nothing to encourage people to provide for their own retirement. Recent calls for savage removal of superannuation tax concessions – specifically targeting SMSF’s – appear to be mainly driven by a desire to drain more tax revenue from the superannuation sector, without substantive policy reasons for the change.

Here are strong reasons why SMSFs are the preferred vehicle for many Australian superannuants:

Control

The big advantage that many trustees see in having an SMSF for their own investment circumstances and that of their family is the ability to control what is happening to their investments and superannuation. They can avoid the high turnover in traditional “actively managed” funds, and invest to build long term “nest eggs” for retirement.  Important to them is that they can personally choose what to invest in, who to include as members of the fund, what type of benefits to take from their SMSF and so on.  This includes what stocks, ETFs, REITs and other listed investment vehicles to place their superannuation monies into.  With a wealth of strong resource material now available on the internet – many SMSF Trustees are comfortable controlling their own investment decisions.

But note that with control comes responsibility.  The government does not provide such great financial opportunities lightly:

  • to be a SMSF, there can only be four members and all members of the fund must be trustees of the fund or directors of a company trustee;
  • all investments must be at arm’s length;
  • SMSF Trustees cannot acquire private company shares from related parties and under current laws;
  • there are also laws to limit investing or lending to a related company – with the limit currently 5%.

Estate Planning

For many SMSF members, the issue of what to do with these assets upon their death is vitally important.  At this point in time SMSFs are the most practical means of delivering a strategic estate plan to your family.

There are a wide variety of estate planning issues that must be attended to, and SMSFs help the efficiency of the process.  Some options including transferring assets including shares, or a cash lump sum of the fund, in-specie to specific children, the spouse, other financial dependants or the deceased member’s legal estate; or the payment of a pension to the spouse or dependant under the age of 25 (provided it terminates at 25 with any remaining account balance payable as a lump sum).

What’s up for grabs?

There are a wide range of taxation incentives for superannuation, and adverse changes to each have been floated:

  • Tax deductions for contributions –the current limit on deductible contributions of $25,000 per annum per member may either be further reduced or limited to lower income investors;
  • Low Tax on Fund Investments –to discourage lump sum withdrawals, fund investments are not taxed when members take a pension. New taxes on income in pension phase have been flagged;
  • Tax Effective Income and Lump Sums. A means test on “Transition To Retirement” income has been flagged. Note that the old Reasonable Benefit Limits scheme was abandoned by the Howard government for being more costly and unworkable than the money it raised.  

Tony Rumble, PhD (these views are the author’s and do not represent the views of any other organisation) is the CEO of LPAC Online and a member of ASMA, an organisation which encourages all SMSF trustees to lobby their federal member and Government against these changes. Online petitions and more detailed information can be viewed at www.smsfmembers.com.au.

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