Is an SMSF right for you?
Self-managed super funds (SMSFs) are the largest and fastest growing super sector in Australia and for many good reasons. But before you start an SMSF, it’s important to weigh up both the advantages and disadvantages and consider seeking advice to determine whether an SMSF is right for you.
SMSFs can offer a number of features and benefits generally not available with other super options.
More investment control
You can establish your own investment strategy and directly control where and how your super is invested.
More investment choice
You can select from a wider range of investments including all listed shares, some unlisted shares, residential and business property, and collectables such as artwork, stamps and coins.
One fund for the family
You can set up a fund for yourself and up to three other people and consolidate your super balances. This could enable you to invest in assets of higher value than if you set up a fund with fewer members, achieve greater estate planning flexibility, and reduce fund costs.
Borrow to make larger investments
Your SMSF could make a larger investment in assets such as shares and property by using cash in your fund and borrow the rest.
With SMSFs you can take greater control over the timing of tax events such as starting a pension without triggering capital gains tax when your superannuation assets move into pension phase. You may also have the option of transferring certain assets that you own into your SMSF.
Greater estate planning certainty and flexibility
You can nominate who you would like to receive your super when you pass away without having to meet some of the constraints that apply to other super funds.
While an SMSF can offer greater opportunities to take control of your retirement savings, there are some potential disadvantages you should also consider.
Higher costs for lower balances
SMSFs generally only become cost-effective if the fund has $200,000 or more invested. This is particularly true where you outsource and pay for most or all of the fund administration.
When you set up an SMSF, you and any other fund members will generally need to be trustees (or directors of the corporate trustee) and will be responsible for meeting a range of legal and other obligations.
Harsh penalties for breaches
The Australian Tax Office has the authority to impose various treatments to deal with SMSF trustees who have breached super laws. These include:
requiring trustees to complete certain educational requirements within certain timeframes
disqualifying an individual from acting as a trustee or director of a corporate trustee
imposing significant administrative penalties on individual trustees and directors of corporate trustees of up to $10,800 per breach
applying through the courts to impose civil and criminal penalties, and
giving notice to a trustee to freeze the SMSF’s assets where it appears that their conduct is likely to adversely affect the interests of beneficiaries.
You will need to have enough time, knowledge and skills to manage your own super and meet your legal and other obligations.
You should seek professional advice or guidance from a financial adviser when deciding on the best superannuation solution for you. It is recommended that you also seek advice from a registered tax agent to determine the tax implications for you before setting up an SMSF.
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