What are the benefits of a self managed super fund (SMSF)?

Investment control

Most superannuation funds will allow you to invest into shares, fixed interest and property via managed funds, but often with restrictions. SMSFs however can offer a large range of additional investment options including direct property, physical gold and other commodities, derivatives, and subject to strict requirements, collectables such as art work. SMSFs can also offer the flexibility of borrowing within your fund for investment. In particular, small business owners may hold their business premises within their SMSFs for a variety of reasons including asset-protection, succession planning and security of tenancy.

Greater investment flexibility

SMSF members also have greater flexibility on when they acquire and sell their investments and this hands-on approach can mean, for example, as market conditions change you can quickly respond by adjusting your investment portfolio.

Capacity to pool your super with up to three other individuals

SMSFs provide you with the ability to pool your resources with up to three other members. This increased pool may allow you to access investment opportunities that may not be available otherwise. This further increases when gearing using this increased investment pool is considered.

Estate planning

SMSFs offer great flexibility with your estate planning needs. If the fund’s trust deed allows it, SMSF members can make binding death benefit nominations that do not lapse, unlike many public offer superannuation funds which tend to require binding death benefit nominations to be updated every 3 years. In addition, SMSF members may have greater flexibility in specifying how death benefits are to be paid.

Effective tax management

Control and flexibility over your SMSF investment decisions affords you the ability and means to consider tax when managing your fund’s investments such as the effect imputation credits will have on the after-tax earnings of the fund.

The current tax rate on earnings within a superannuation fund is 15%, however, where the income is produced by assets wholly supporting an income stream such as a pension, there is no tax payable within the fund on that income.

This difference in tax rates means that by having control over the disposal of assets, you can minimise, or potentially eliminate a capital gains tax liability.

Adding value with property

Adding to your SMSF with property can be an effective way to grow your super. Owning property through your SMSF typically involves the fund acquiring a residential or commercial rental property which is leased to unrelated tenants, as fund members or relatives generally can’t rent a residential property from an SMSF because of the in-house assets test.  Find our more about how to use a self-managed superannuation fund (SMSF) to access property. 

Always consider the risks

There are strict laws and regulations that govern SMSFs. As a trustee of your own super fund you’re held responsible for your investments and complying with superannuation and taxation laws. Please ensure you aware of the risks to consider before setting up an SMSF.

Next: How much does an SMSF cost?