Each type of superannuation has its own features – some better, and some worse. Setting up a Self-Managed Super Fund ( an SMSF ) provides unique wealth creation opportunities. An SMSF gives you better capital growth and better tax deductions. You are the trustee of your own money and that gives you many financial advantages. Perhaps the biggest advantage of an SMSF is your active control over your own investment decisions.
I am a former lawyer and I majored in Economics at uni. In my view, the future of the share market does not look good. This is primarily due to international economic problems.
Investing in local housing, specifically in areas of constant growth and development (like Melbourne’s south-east), is much less risky than keeping it invested in the share market.
1.Tax Deductions On Brand-New Property Investments
An SMSF gives you, as the Trustee, some unique options to make investments that are not available to normal Super funds. For instance, an SMSF is allowed to purchase house and land packages, but only if the house is brand new. The drawback is that you cannot buy the land and the house separately – it must be on one contract, so you must find a developer or property investment company that can supply this. The good news is that you pay no tax on Super earnings, which is normally 15%. Furthermore, there is no CGT Tax when you sell in retirement.
2. Fractional Property Investing
Most people don’t have $250,000 – $400,000 presently in their Super fund, which is needed to get a loan for a house in an SMSF. The next best option is to make direct investments in unit trusts and fractional investing opportunities – by far better than leaving your Super money in the risky share market.
3.Control The Timing Of Investment For Better Tax Advantages
In a normal Super fund, your money is invested in shares where market timing is critical for making investment and sale decisions. You don’t have those problems with an SMSF, because the power lies with you.
You have the control over the timing of buying or selling share-based fund investments, and this is critical in providing considerable tax advantages. In fact, for tax purposes, an SMSF is treated the same way as the usual larger funds, but with greater flexibility in using the various tax rules for better treatment.
4. Cost Savings
If cost is your priority then keep a watchful eye on your next super fund statement. The cost of establishing and running your SMSF is cheaper than you are presently paying in fees to your industry Super fund.
5. Estate Planning For Your Immediate Family
There are two certainties in life – death and paying taxes. An SMSF provides a better vehicle for estate planning, should you be keen on providing for your family when you are no longer there.
Inter-generational transfer of SMSF property fund assets can also be arranged for you where other members of your family also belong to the fund. This will become increasingly important when the law changes on 1 July 2019, whereby the maximum number of trustees in an SMSF increases to 6. Even the government encourages and recognises the importance of family wealth building.
As many SMSFs have members either retired or nearing retirement, proper estate planning should be a priority to ensure that any financial benefits that you are accumulating for members are paid to the benefit of beneficiaries of your choice – not as the government may require. This is often done by using Wills & Binding Death Benefit Nominations (BDBNs) or a reversionary pension.
6. Asset Protection From Creditors
It is an important and little-known benefit of an SMSF. If a member or their SMSF property business should run into trouble, nobody can touch your Super or the investments inside it. It’s more of a backstop rather than a primary reason to go into an SMSF, but it’s an added assurance that valuable assets which are designated for retirement income are adequately protected, just in case.
7. Satisfaction Of Running Your Own SMSF
You have the ability to go safely outside the usual restricted Super boundaries and into higher returning investments. You are allowed and empowered to make decisions which are directed to the benefit of you and your family, not to the large corporations investing your Super.
SMSFs and property investments are not for everyone – but see if you qualify wholly or by fractions. Get in touch with us, particularly if you have little time or financial knowledge. SMSFs are worth considering for most Aussies.