Is an SMSF right for you?

Self-managed super funds (SMSFs) are the largest and fastest growing super sector in Australia and for many good reasons. But before you start an SMSF, it’s important to weigh up both the advantages and disadvantages and consider seeking advice to determine whether an SMSF is right for you.

The advantages

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

1. More investment control

You can establish your own investment strategy and directly control where and how your super is invested.

2. More investment choice

You can select from a wider range of investments including all listed shares, some unlisted shares, residential and business property, and collectables such as artwork, stamps and coins.

3. 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 assets of higher value than if you set up a fund with fewer members, achieve greater estate planning flexibility, and reduce fund costs.

4. 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.

5. 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.

6. Greater estate planning certainty and flexibility

You 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.

The disadvantages

While an SMSF can offer greater opportunities to take control of your retirement savings, there are some potential disadvantages you should also consider.

1. 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.

2. Greater responsibility

When you set up an SMSF, you and any 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.

3. Harsh penalties for breaches

The Australian Tax Office has the authority to impose various treatments to deal with SMSF trustees who have breached super laws. These include:

• requiring trustees to complete certain educational requirements within 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 civil and criminal penalties, and

• giving notice to a trustee to freeze the SMSF’s assets where it appears that their conduct is likely to adversely affect the interests of beneficiaries.

4. Time consuming

You will need to have enough time, knowledge and skills to manage your own super and meet your legal and other obligations.

Seeking advice

You should seek professional advice or guidance from a financial adviser when deciding on the best superannuation solution for you. It is recommended that you also seek advice from a registered tax agent to determine the tax implications for you before setting up an SMSF.

To find out more about the information in this article contact with Charles Choong on 03 9654 9886, or you can send an email to firstpacificfs@gmail.com for more information.

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Important information and disclaimer

This publication has been prepared by Charles Choong (ARN 244 731) is an Authorised Representative of Professional Investment Services (ABN 11 074 608 558), Australian Financial Services Licence 234 951

The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Professional Investment Services Pty Ltd (PIS) Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither PIS nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.