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All You Need To Know About A Self-Managed Super Fund

Updated: Aug 4, 2023

Are self-managed super funds worth it? We find out…

Are self-managed super funds worth it? We find out…

In a nutshell, self-managed superannuation funds, also known as SMSFs, are a means to financially plan for your retirement.

However, are they tax effective and all they’re cracked up to be? Our team of financial advisers believes there are pros and cons when it comes to a self-managed super fund in Australia. In short - there is no one-size-fits-all approach, and it comes down to very specific circumstances and wealth goals of the individual/s involved.

Here, we uncover everything you need to know to get a clear idea about a self-management super fund. As a second step, why not speak to our team of experts? We can provide a no-cost, no-obligation consultation to understand if a self-managed super fund investment strategy is the best way to build your wealth.

What is a self-managed super fund?

We’ve all heard of retirement investment funds, right? These are long-term retirement investment funds managed by third parties. A self-managed super fund, however, is when the fund’s members are also its Trustees. So, in other words, the people who stand to benefit from the investment are the ones running it. Importantly, SMSFs are also private, and there can be no more than six fund members.

How do self-managed super funds work?

Trustees are responsible for everything to do with a self-managed super fund. This includes ensuring it is compliant, insured, legal and fulfilling all its various taxation responsibilities. Trustees must also decide where the funds will be invested.

Self-managed super funds pros and cons

Self-managed super fund benefits

Let’s start with the positives!

  • Tax concessions, with tax on investment income capped at 15 per cent (although this is the same for all super funds).

  • You’re in the driving seat. You decide where and how your money will be invested.

  • You can make adjustments as you go.

  • Investment diversity. You can potentially select investment options, including cash accounts, term deposits, direct shares, income investments, direct property, unlisted assets, global markets and more. That said, it’s important to note that retail super funds offer a lot of choice as well these days.

  • Currently, fellow Trustees can combine their superannuation assets with up to three other members.

  • The bigger an SMSF gets, the more cost-effective it becomes.

  • Can lead to a greater visibility and deeper understanding about your financial future.

The negatives of a self-managed super fund

Here at ActOn Wealth, we are big believers in going into any financial decision with eyes wide open. We steer a fully-transparent ship, which includes sharing the warts when we see them. If you’re thinking about how to start a self-managed super fund, consider the challenges. They include:

  • Starting a self-managed super fund and then operating an SMSF requires a lot of work.

  • The cost to set up and maintain an SMSF can be high.

  • Trustees are 100 per cent responsible for everything. Even if they act on professional third-party advice, the buck stops with the Trustees.

  • Just because you are calling the investment shots directly does not mean you will make the right decisions - the performance might still not be what you were aiming for.

  • Once you board this train, it doesn’t stop. If your professional circumstances change and, for example, you lose your job, the ongoing SMSF maintenance costs won’t grant you any concessions.

  • If you are moving from an industry or retail super fund, you may risk losing your insurance.

  • You need to be knowledgeable about Australian tax regulations and laws.

Setting up a self-managed super fund

There is a vast amount to consider and do when considering a self-managed super fund set-up. If you want to know how to start a self-managed super fund, we strongly recommend you organise a no-cost, no-obligation consultation with our team of self-managed superannuation fund experts.

Can I transfer my super to a self-managed super fund?

As per Australian superannuation law, you can only transfer your superannuation balances to a self-managed super fund if you or the company you own is a member, Trustee or Director of a corporate Trustee of the SMSF in question.

Can a self-managed super fund borrow money?

Yes - as long as you use a Limited Recourse Borrowing Arrangement for your transaction, your SMSF can borrow money.

Can self-managed super fund property?

As we’ve made clear, this topic requires a lot of research and awareness. There are particular SMSF rules, and many of them revolve around buying property. In short, you may be able to make a purchase using your fund. However, the transaction must meet specific legal criteria, including:

  • The property meets the ‘sole purpose test’ in that its only purpose is to provide Trustee members with retirement benefits.

  • It cannot be purchased from a Trustee relative.

  • No Trustee or Trustee relations can live in the residential property.

  • No Trustee or Trustee relations can rent the property.

Importantly, if it is a commercial property, it can be leased to Trustee members or their relatives, provided it is at market rates and complies with additional rules.

Do self-managed super funds pay tax?

Yes, as we touched on above, the cap is 15 per cent. Beyond that, there can be capital gains tax implications when you sell down assets. These implications depend on your age and the phase in which the fund is in.

Are self-managed super funds worth it?

Now you’ve read this information, you no doubt understand that the answer to this question is not so clear-cut. If your finances and financial goals are in-line, then an SMSF can be a very smart wealth-building strategy. However, if you’re a square peg trying to fit into a round hole, this could be one of the most costly and stressful financial decisions you could make.

Get in touch with a financial advisor in Melbourne about the latest details regarding self-managed super funds in Australia. We don’t beat around the bush - we give tailored financial planning and superannuation advice in Melbourne that is right for our clients.

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