Self Managed Superfunds (SMSF) Advantages and Disadvantages

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As your year winds to a close, and you have a little ‘spare time’ between Christmas and the new work year starting, it’s a good idea to take some time to review and consider your superannuation situation. Your super is your future, so placing importance on it is truly vital. Managing your own Super Fund sure has a long list of advantages, but it is not for everyone. Here are a few pointers to help you consider if opening a SMSF is right for you…

ADVANTAGES

  • Control & Choice – YOU HAVE CONTROL and choice over your investment portfolio, being able to decide what investments to hold.
  • Efficiencies – You are allowed between 1- 4 members in the fund. Members funds can be pooled together to share investments/assets or they can be allocated to a specific member within the fund.
  • Tax – Having your own Super Fund gives you control over when you buy and sell investments, giving you the potential to save tax. Large funds may buy and sell investments regularly resulting in tax paid regularly on any gains made. You can be selective with your investments by identifying high franking dividend stocks, thus minimising tax.
  • Cost – You will pay a flatter fee structure, unlike industry/retail funds that charge a percentage of the fund balance. The higher your fund balance the cheaper the fund becomes in comparison to an industry/retail fund (Industry/retail funds are typically cheaper if fund balance is less than $200,000).
  • Less hidden fees – Your industry/retail fund will potentially reduce returns due to fees charged within managed fund investments in addition to the total administration fee charge.
  • Transfer in Assets – Commercial property, listed shares and other listed investments can be transferred into SMSFs.
  • You can Invest in your own Commercial property (business real property) using your SMSF. This may allow you to invest in your businesses premises sooner.
  • You can Invest in Residential property.
  • Borrowing – You may borrow or gear to purchase an investment.

DISADVANTAGES

  • Responsibility and Time – Administration and compliance requirements need to be met, as well as managing and researching investments.
  • Cost – Having a SMSF will be more costly than an industry/retail fund where the SMSF has a low balance.
  • Overseas – Are you expecting to live overseas? – There is a limited amount of time that you can live overseas as an SMSF member.
  • SMSFs have no access to the Superannuation Complaints Tribunal. This means that conflicts between member may result in expense legal action.
  • SMSFs are also not entitled to claim a grant for financial assistance from the Government/Regulator in the event of a loss of funds through fraud or theft.

 

OTHER ITEMS TO CONSIDER…

  • What insurance (life, TPD, income protection) you have in place in your existing fund. When setting up an SMSF you must consider your insurance cover.
  • Understanding your Position – Your accounting and advisory firm can be a one stop shop for administration of your SMSF and financial advice. You receive personalised advice that is tailored to your financial position, risk profile and financial goals.

 

If you are considering a SMSF or would like to speak to one of our specialists about your current superannuation, please contact your local office Cranbourne, Prahran or Mornington.

 

Article by Cranbourne Director, Dave Sheahan CPA.

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