Self-managed super funds (SMSFs) are now the fastest growing segment of the super industry[1].  But this doesn’t necessarily mean they’re the best choice for everyone.


As at March 2017, there were 1,120,117 SMSFs in Australia, up from 528,701 as at March 2014, with a current total of $674,742 million worth of assets ($647,922 net of borrowings).[2] There are many compelling reasons why SMSFs are so popular — and equally persuasive reasons as to why they don’t suit everyone.

THE PROS

If you’re a keen, experienced investor, with at least $200,000 to invest — and the time and expertise to manage your own investments — an SMSF could be a good choice.

One advantage is that SMSF administration costs stay fixed — unlike a retail fund, which charges fees as a percentage of the value of your portfolio. So for example, if your super fees are 1% of your fund’s balance, you would pay $2,500 if you had $250,000 worth of super savings.

Then, if your portfolio balance grew to $500,000, you would pay $5,000.But with an SMSF, you would pay the same amount in administration costs, regardless of how much your balance grows.

If you’re a business owner, there may be advantages for your business premises to be owned in your SMSF and then leased it back to the business.

Firstly, the income your SMSF receives as rent is usually taxed at just 15%. What’s more, if your SMSF borrows money to buy the premises, the repayments can be tax-deductible to the fund. You’ll also be effectively your own landlord, providing security to your business’ tenancy however the arrangement would need to be on commercial terms.

THE CONS

But remember, running an SMSF is complicated, time consuming and requires considerable knowledge about investments. You’ll need to create and document your fund’s investment strategy, record your investments and transactions, and ensure that your fund is adequately diversified to help manage the risks of investing.

It’s also vital that a qualified auditor looks over your fund each year to ensure it is compliant. And there can be significant penalties for non-compliant funds.

Finally, if there is a conflict between you and the other trustees of your fund, you’ll need to resolve them privately, as SMSF trustees and members aren’t able to appeal to the Superannuation Complaints Tribunal to resolve disputes. This could result in large legal fees and relationship breakdowns with the other trustees — who may be family members or business partners.

GET EXPERT ADVICE

If you or your clients have an interest in a SMSF, it’s important to seek advice.  Make an appointment with a financial adviser, who can help with the right strategy for your retirement savings.  To find out more contact:

Ryan Kelly (Western Australia) ryank@spfgroup.com.au or 0432 051 778

Stevie-Jade Turner (Eastern Australia) steviet@spfgroup.com.au or 0433 313 099

Specialist Financial Solutions is not a registered tax agent. If you wish to rely on the general tax information contained in this communication to determine your personal tax obligations, we recommend that you seek professional advice from a registered tax agent.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.


[1]ATO (2013) Running a Self Managed Super Fund https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/spr17621_smsf.pdf

[2]ATO (2017) Self Managed Superannuation Fund Statistical Report https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/Statistics/Quarterly-reports/Self-managed-super-fund-statistical-report—March-2017/?anchor=Populationtablequarterlydata#Populationtablequarterlydata


This information has been prepared by Apogee Financial Planning Limited ABN 28 056 426 932 AFSL 230689, a National Australia Group Company, 105-153 Miller Street, North Sydney NSW 2060 Australia.
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