Self Managed Super Fund Guide

Self managed superannuation funds have become the fastest growing segment of the Australian superannuation industry. So what are these funds, and what makes them so popular?

A self managed super fund, commonly known as an SMSF, is a type of super fund that gives you more control over the running of your retirement savings.

With a traditional super fund you still have some control over how your retirement savings are invested. You can choose to have them invested in a balanced fund like many Australians do, or you can choose an investment strategy that is more conservative or more aggressive.

Although you can choose the overall investment strategy of a traditional super fund, ultimately the investment decisions are made by your super fund and their investment fund managers.

An SMSF is very different, as you have complete control over your retirement savings. You can leave your savings in cash, you can invest in direct shares and managed funds, and you can even invest in residential and commercial property.

Advantages of an SMSF

The main advantage for many people in holding an SMSF is the freedom of investment choice that is available. Another major advantage comes in the form of reduced fees for larger super balances, however this can have the opposite effect for smaller balances.

An SMSF allows you to choose not only the specific investments for your super fund, but also the timing of purchases and sales. Being able to control this timing gives you more control over the tax implications for your fund, specifically around capital gains tax.

Property has always been a favourite investment for Australians, and by utilising an SMSF you are able to purchase direct property. Thanks to more recent changes in the superannuation laws your SMSF can even borrow money to purchase investment properties.

Most traditional super funds charge their fees on a percentage basis, which means that your fees will increase as your super balance increases. With an SMSF the costs are generally charged as a flat fee, effectively meaning that the fees become lower in percentage terms as your balance increases.

SMSF Responsibilities

With added control comes added responsibility, and as an SMSF trustee you will have a number of serious responsibilities with considerable consequences if you get them wrong.

Each SMSF must have an investment strategy in place, and it is your responsibility to ensure that your SMSF adheres to the written strategy.

The most important for responsibility for any SMSF is to adhere to the ‘sole purpose test’ that applies to all SMSFs. The sole purpose test states that all investments made by the fund must be for the sole purpose of maximising your retirement benefits.

This means that your SMSF cannot hold any investments that will benefit you before retirement. Examples where people have been caught out include investing in artwork that is displayed at home and investing in holiday homes that are then used exclusively by the family.

The rules surrounding the sole purpose test and SMSFs in general can be very complex. It certainly is possible to invest in artwork or a holiday home, however there are very strict guidelines which must be adhered to.

If you are considering an SMSF it may be a good idea to speak with your accountant or financial adviser to ensure that the strategy is right for you.

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