What are the benefits of an SMSF?

SMSF benefits also include the flexibility of borrowing within your fund for investment purposes. Also, some small business owners may hold their business premises within their SMSF 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.

Ability to pool your super

Another benefit to an SMSF is 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 to your SMSF.

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 three years. In addition, SMSF members may have greater flexibility in specifying how death benefits are to be paid.

Effective tax management

In an SMSF you have greater control of your assets and investment decisions, which may allow you to better manage the tax position of the SMSF.

The current tax rate on earnings within a superannuation fund is 15%, but 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 may be able to reduce, or potentially eliminate a capital gains tax liability.

Adding value with property

Adding to your SMSF with property can be another 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. Fund members or relatives can’t rent a residential property from an SMSF because of the in-house assets test.  

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. Make sure you’re aware of the risks to consider before setting up an SMSF.

Next: 5 steps to setting up a self managed superannuation fund (SMSF)