SMSF

A Self Managed Super Fund, or SMSF is a legally sanctioned, stringently regulated, tax-advantaged structure for accumulating wealth during your working life to either fund or assist in funding, your retirement.

Currently, in Australia, there are approximately 600,000 SMSF’s with almost 1.1M members. SMSFs control assets of close to $750B, or nearly a third of all superannuation assets.

Contributing to or holding assets in an SMSF affords the investor favourable tax treatment, but the tradeoff is strict compliance responsibilities and individual liability for the member trustees.

An SMSF can have up to 4 members, and all are equally responsible for making sure that the fund complies with superannuation and tax legislation. The Australian Tax Office imposes harsh penalties for stepping outside the guidelines.

Australia’s ageing population makes the welfare burden unsustainable. Compulsory super contributions are an investment for the future and a deliberate measure to ease the strain on the government’s purse strings.

How those contributions, compulsory or voluntary, are invested depends on whether you choose an industry or retail fund or undertake to do it yourself by setting up and running an SMSF.

SMSFs are established for the sole purpose of providing financial benefits to members in retirement and their beneficiaries. They have a Tax File Number (TFN), Australian Business Number (ABN) and transaction account, for contributions and rollovers to be paid into, to make investments and disburse funds to beneficiaries.

It’s important to understand that an SMSF has strict controls and high compliance costs in terms of effort and expense. For a short overview, take a look at this video from the ATO and seek professional advice!

 

ATO – What’s involved with an SMSF?

 

 

 

SMSF legislation allows non-recourse borrowing by an SMSF for a property.

‘Non-recourse’ refers to the fact that if the borrower (the separate entity, the SMSF) defaults the lender can only seize the assets held as collateral for the loan (the property). The lender cannot seek any compensation from the personal assets of the fund members.

Legislation allowing SMSFs to purchase a property under these provisions is a strong vote of confidence in the asset class’s relative predictability and the security of retirement funds.

 

Companies

A Company structure is not a preferred or recommended setup for many investors. The establishment costs are high as are the compliance expenses.

They are also harder to secure finance for, and there is no CGT discount on offer regardless of the time the asset is held.

However, a company structure does offer a lower tax environment and limited liability, along with personal asset protection for the shareholders.

The profits do not have to be distributed; they can be retained in the company for distribution at a more tax appropriate time for each shareholder.