A superannuation fund is simply a form of trust designed to provide
retirement or death benefits for its members, with those members being
the beneficiaries. Provided the trust deed and the operation of the
superannuation fund comply with the SIS Act and Regulations, the trustee
operating the Fund, and the members, may obtain tax concessions.
superannuation funds in Australia operate as trusts. The deed
establishes the basis of calculating each member's entitlement.
The trustee will usually retain discretion
concerning such matters as the fund's investments and the selection of a
death benefit beneficiary. Many business owners use SMSF as an integral
part of their wealth creation and asset protection strategies.
While SMSFs are attractive because of the
level of control they provide to family members, it has to be remembered
that they are still subject to a whole range of legislative
requirements. Thus while SMSFs may look superficially like a
discretionary trust, they are actually quite different and trustees need
to be aware of their special responsibilities.
The fund only pays 15 per cent tax on
the taxable income of the fund and the tax payable is reduced by
imputation credits on dividends received by the fund. Capital gains
tax on assets held in a super fund for more than 12 months and later
sold is equivalent to a flat 10 per cent.
The trustees (who are also the members)
control the investment decisions and asset mix, and have the
flexibility to change investments when they consider that this is
appropriate (that is, they are not locked into a fund manager's
mandate or poor returns).
It encourages self-sufficiency at
retirement and interest in one's own financial affairs.
It can be used to accumulate
superannuation assets and can then be used to pay a
superannuation-funded pension to the members when they retire. This
offers increased financial security later in life. (Some members may
also qualify for part or full government age pensions.)
Costs of compliance and administration
are often less than the fees charged by a public superannuation fund
(although this will vary with the size of the investment, cost of
advice, number of transactions and amounts and types of investments
The members don't get charged an entry
fee when they contribute to the fund or an exit fee if they withdraw
People who are running a business can
own their business premises in a self managed superannuation fund
and rent to themselves or to a related party. The fund may also own
residential investment property so long as it buys it from or leases
it to an unrelated party. (Note that residential property be
purchased or acquired from a member or related party of the fund.)
It can be financially rewarding and fun
once you know what you are doing. For example, superannuation fund
investments can be selected and where appropriate integrated with
the members' personal investments (within limits) to get overall
A properly structured self managed
superannuation fund safeguards your assets in the event your
superannuation outlives you, so your family and other members
benefit - not a large life company!
The people who do take the time to
understand the rules and the constraints and stay within them rarely
encounter problems. Also there are specialist firms that can guide
you every step of the way from the setup to conversion to pension to
paying out benefits when a member dies, and many can also do the
administration for you if required.
You will need to pay ongoing attention
to investments, the economy and changes in legislation.
The potentially higher costs of self
managed superannuation funds with low capital may make the fund
uneconomic when compared with the net return from an account in a
larger superannuation fund.
The members are also the trustees,
which means they have additional responsibilities and the
requirement to comply with legal requirements.
The fund may have a lower investment
performance if the trustees' and members' management is not closely
controlled or if there is too much reliance on commercial advisers,
as distinct from the professional advisers not affected by
If the fund ever becomes non-complying,
for example, if there is a serious breach of investment rules with
related parties, it can lose its tax concessions.
Need for continuing attention.
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