What are the benefits of self managed Super?
Greater flexibility with tax
Super can be a tax-effective investment vehicle. SMSFs that comply with super legislation are generally entitled to have their member’s contributions and fund earnings taxed at the concessional rate of 15% in Australia (up to certain limits).
In addition, benefits received after the age of 60 are tax free. Fund earnings when an SMSF is in pension mode are also tax free.
These tax benefits are common to all super, not just SMSFs. However, SMSFs have more flexibility to use tax strategies around capital gains, taxable income or franking credits.
Greater control over investments
SMSF trustees have more control over how their funds are invested. They can invest in many of the products available to public funds, as well as some products that aren’t. For example, SMSFs can invest directly in residential real estate, rather than being restricted to property trusts as many public funds are.
Business owners may use their SMSF to purchase their business premises or other commercial property, which can then be leased to a related party.
Potentially lower fees on higher balances
After years of heated debate about the real cost of running an SMSF, a comprehensive report by Rice Warner for the SMSF Association provided some much-needed clarity.
The Costs of Operating SMSFs 2020 report broke down the ongoing costs for different balances and the amount of administration outsourced to external service providers. It also looked at funds with and without direct property investments.
The report found that SMSFs with a balance of $200,000 or more provided equivalent value to industry or retail funds at all levels of administration, while SMSFs with $500,000 or more were generally the cheapest alternative.
By their very nature, SMSFs are tailored to the preferences of their members, so there is no such thing as an average fund or average fees. Once your SMSF is set up, the ongoing fees you pay will depend on various factors including:
- The number of members
- The combined member balances
- The type of investments (for example, SMSFs with direct property pay higher investment fees on average than funds without direct property)
- The amount of administration you outsource
Taking the example of a total super balance of $250,000, the report found average annual fees for various types of super funds were:
- $2,728 for industry funds
- $2,502 for retail funds
- $2,959 for SMSFs ($10,198 for funds with direct property and $2,720 for those without direct property).
Estate planning
One often overlooked advantage of SMSF funds is that they can provide greater flexibility with member death benefits than public funds.
For example, an SMSF member can arrange for:
Death benefits to be paid to a dependant as a pension rather than a lump sum, allowing the SMSF to continue operating
Funds to be distributed to future generations tax effectively
Non-cash assets (such as property or shares) to be transferred directly to a beneficiary.
Asset protection
SMSFs provide an effective way of protecting their member’s assets against any future risk of bankruptcy or other claims by creditors. This can make them especially attractive for business owners and professionals.
Superannuation funds are not considered to be ‘property’ in relation to the Bankruptcy Act.