Self-Managed Super Funds (SMSFs)
A Self-Managed Super Fund (SMSF) offers greater control over retirement savings. Unlike retail and industry super funds, SMSFs allow members to directly manage and diversify their investments, including property, shares, and bonds. This flexibility enables trustees to tailor their investment strategy to match their risk profile and financial goals.
Tax Efficiency
SMSF trustees can implement customized tax strategies, such as timing asset sales to minimize capital gains tax or utilizing franking credits from dividend-paying shares. This can lead to significant tax savings and increased investment income over time.
Estate Planning
SMSFs provide flexibility in how superannuation benefits are distributed, with options such as binding death benefit nominations ensuring that a trustee’s wishes are honored.
Pooling and Transparency
SMSFs can include up to six members, often pooling family assets, which enhances investment opportunities and reduces costs through shared expenses. SMSFs also offer transparency, providing members with full visibility over investments and performance, leading to better-informed decisions.
Cost-Effectiveness
SMSFs can be cost-effective. As the balance grows, the fixed costs of administration, auditing, and compliance become more efficient relative to the fund’s size.
Illustrating the Investment Flexibility of a Self-Managed Super Fund
Property
Commercial and residential property can be purchased in a Self-Managed Fund. The fund can borrow from a financial institution or from the members of the fund to purchase an investment property. The rental income from that property, along with superannuation contributions for the members, can be used to pay down the loan of the fund.
Note: There are strict rules covering such purchases, and C&H can guide you through these regulations.
Franking Credits
With a self-managed fund, you have the discretion to invest in shares and managed funds that have fully franked dividends or fund distributions. The income is attached to a 30% tax credit. The self-managed fund pays tax at a rate of 15% on super contributions and investment income earned on the fund’s investments.
If the members are over 60 years of age and retired, and the fund is in pension phase, no tax is paid on the fund’s investment income.
Example Scenario
If the fund received $70,000 in investment income, such as dividends from Commonwealth Bank, there would be an attached $30,000 in franking credits:
- A fund not in pension phase will receive a refund of $15,000.
- A fund in pension phase will receive a refund of $30,000.
We specialise in providing tailored advice and accounting services for self-managed funds. We also have the expertise to advise on investments and future strategies through C&H Financial Planning Services Pty Ltd. For expert guidance on investing through a self-managed fund, contact us at C&H on enquiries@chcpas.com.au or (03) 9431 1420.
