Superannuation in Australia is growing in significance with the aging population and government policy encouraging personal reliance on superannuation. Currently there are currently over 500,000 self-managed super funds in Australia with this number growing. The average member balance in SMSFs is $467,000.
The tax advantages of a SMSF are clear – income from investments held personally is taxed up to 46.5%. Investments in superannuation are taxed at a fixed flat rate of 15%. Any money taken after the age of 60 is then tax free to the member.
In addition to employer compulsory contributions it is possible to make personal contributions however currently the government has a cap of $25,000 per annum per individual of contributions into superannuation.
A self-managed super fund is a type of superannuation fund that is independently established and run. It meets the following conditions:
- Have four or less members
- Have each member as a trustee or have a corporate trustee where each member is a director
- Not make payments to a trustee for acting as a trustee
- Have no member who is an employee of another member, unless they’re related
Some advantages of an SMSF are:
- Members of a family can pool their superannuation and control their investments
- SMSF members can choose specific investments
- An SMSF can negatively gear property
- SMSFs gives members greater efficiency and control
- Reduced costs. Many fees for a SMSF are fixed
- Tax efficiency
It is possible to have life, income protection, trauma and total and permanent disablement insurance inside and paid for by the SMSF. However insurances currently held in an industry fund may not be able to be rolled or obtained inside the SMSF.
Some disadvantages of an SMSF are:
- Risk of non-compliance and administration obligations.
- The sole responsibly for the fund rests with trustees. It is vital to stay up to date with the rules
- Having inadequate assets can make a SMSF more expensive than an industry fund
- Limited membership – only four members are allowed
- Breakdown in member relationships will result in costs upon breakup.
The money available to roll into the fund may not be enough to cover the investments you wish to undertake. Entering into a SMSF is a decision that cannot be taken lightly – it is the trustee’s sole responsibility for the administration of the fund. However the trustees can outsource any service (such as accounting and investment advice) it needs help with.
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