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The opportunities and benefits of an SMSF 

It seems that as an aging population becomes increasingly concerned (and for good reason) over their financial security, the popularity of self managed superannuation funds has grown exponentially. Whether this is a case of people deciding not to trust their private fund, or more a situation of persons wanting to control of their own money is debatable. Many Australians have become familiar with the inherit benefits of SMSFs, with freedom of investment choice being identified as the main rationale for setting one up.


The fund owner’s investment options and opportunities are maximised through SMSFs where assets such as hedge funds, shares, and property are all viable choices. Although this may present an ideal reason to establish and maintain an SMSF in its own right, listed below are many underlying benefits outside of investment decisions which serve to make the idea of an SMSF even more attractive.

Opportunities that extend past the immediate investment benefits of a SMSF exist to capitalise on a far greater number of investment strategies and subsequent plans to assist in minimising tax and bolstering cash flow, for example:

 

  • Tax benefits/exemptions

When considering the potential tax benefits enjoyed by SMSF members, what can be seen is a far greater level of control that members can excerpt over their fund in getting the most out of it. Some opportunities include the ability to void many otherwise obligatory taxes, along with general tax advantages experienced through appropriate strategic planning over the fund. Some of these tax advantages are explained in sections below.


  • Estate planning (Lasting legacy and inheritance)

The ability of SMSFs to deliver benefits relating to estate planning are numerous and far greater than that of a commercial super fund. Tax advantages of SMSFs can be attributed to benefits such as:

- Leaving low-tax, or tax-free income streams to dependents.

- Ability to take care of child beneficiaries to a far greater extent.

- Control who receives payments, along with when they can receive them.

- Credit


SMSFs possess more power than commercial funds in the type of borrowing arrangements and allowances that the nominees are entitled to. New laws were passed down recently and mean flexibility is now a key benefit here, where assets such as direct property are much more easily acquired/integrated into a SMSF arrangement.

 

  • Overhead Costs

When we consider the costs incurred in running a super fund, many people find the overarching costs of commercial funds to be marginally higher. The predominant cost of a SMSF usually stems from administration responsibilities (undergone annually) and is a flat-fee structure. This fee can be shared by up to four members, further minimising the cost. Commercial funds, on the other hand, take a given percentage of the balance present within the account which can become far less attractive once the fund gains momentum and the account accrues a higher balance. With this in mind, it easily becomes apparent the SMSF is more beneficial over time.

 

  • Accumulation and Pension phase

An SMSF facilitates a quick turn around time from the accumulation to pension phase, with no other commercial fund making the process more flexible and streamlined than what a SMSF can offer.


  • Asset protection/risk management

In a post-GFC landscape, many found out just how much impact economic volatility can have on one’s own wellbeing, with many losing their benefits or going bankrupt altogether. Legal issues surrounding financial arrangements, ownership and structures at an individual level is a regular occurrence, with many losing what was/is rightfully theirs. In a SMSF, like a commercial fund, these issues will not affect you.

 

It is for these reasons that SMSFs are now a first choice amongst so many Australians looking for more effective, efficient, reliable, consistent and profitable outcomes from their super fund. What is illustrated is that although establishing a SMSF comes with some given responsibility, the benefits of creating and managing one far outweigh the potential draw-backs of a commercial fund.


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