Financial Tips: Is an SMSF right for you?

There are good reasons why self-managed super funds (SMSFs) are the biggest and rapidly growing super section in Australia. However, you should first consider the pros and cons of starting an SMSF, as well as seek financial tips from the experts as to whether SMSF is right for you.

Let us consider the following benefits and drawbacks of having SMSFs:

SMSFs can offer a number of features and benefits that are not generally available with other super options.

  • More investment control – You can plan your own investment strategy and directly control where and how your super is invested.
  • More investment choice – You can select from a wider range of investments including listed shares, residential and business property, and collectables like artworks, stamps, and coins.
  • One fund for the family – You can set up a fund for yourself and up to three other people and consolidate your super balances. This could enable you to invest in higher value assets than if you set up a fund with fewer members, achieve greater estate planning flexibility, and reduce funds costs.
  • Borrow to make larger investments – Your SMSF could make a larger investment in assets such as shares and property by using cash in your fund and borrow the rest.
  • Tax savings – With SMSFs, you can take greater control over the timing of tax events, such as starting a pension without triggering capital gains tax when your superannuation assets move into pension phase. You may also have the option of transferring assets that you own into your SMSF.
  • Greater estate planning certainty and flexibilityYou can nominate who you would like to receive your super when you pass away, without having to meet some of the constraints that apply to other super funds.

Whilst SMSF offers greater opportunities to take control of your retirement savings, there are also some possible drawbacks to consider.

  • Higher costs for lower balances – SMSFs generally only become cost-effective if the fund has $200,000 or more invested. This is particularly true where you outsource and pay for most or all of the fund administration.
  • Greater responsibilityWhen you set up an SMSF, you and other fund members will generally need to be trustees (or directors of the corporate trustee) and will be responsible for meeting a range of legal and other obligations.
  • Harsh penalties for breaches – The Australian Tax Office has the authority to impose various treatments to deal with SMSFs trustees who have breached super laws. These includes:
    • requiring trustees to complete certain educational requirements with certain timeframes
    • disqualifying an individual from acting as a trustee or director of a corporate trustee
    • imposing significant administrative penalties on individual trustees and directors of corporate trustees of up to $10,200 per breach
    • applying through the courts to impose a civil and criminal penalties, and
    • giving notice to a trustee to freeze the SMSFs assets where it appears that their conduct is likely to adversely affect the benefits of beneficiaries
  • Time-consuming You will need enough time, knowledge and skills to manage your own super and meet your legal and other obligations.

Now that you know the different benefits and drawbacks of having an SMSF, you should seek professional advice and guidance from financial experts and registered tax agents. This will enable you to know the best superannuation solution for you as well as the tax implications before setting up an SMSF.

You can also talk to us to discuss further if SMSF is right for you.

Do you think this article is helpful? Share it with your colleagues and friends so they too can check if SMSF is right for them.

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–Dalai Lama

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