As we mentioned last week, SMSF’s are the fastest growing sector in Australia. More than 478,000 SMSF’s have been established to date and they contain assets of over $439 Billon and rising every day.
It all begins with Investment choice:
A major benefit of SMSF’s is investment control and choice. SMSF’s can invest in a wider range of assets that the Retail and Industry sector cannot. Small business owners can benefit from purchasing their commercial premises in a SMSF, this frees up the capital of the business to use in its everyday trading. The SMSF benefits form having assets with potential major capital growth and a steady income stream from the tenant. Capital Gains can be minimised or completely obliterated when using a SMSF to purchase property.
If you can’t purchase outright then borrow:
In 2007 the rules changed to allow SMSF’s to borrow under strict conditions to purchase property in the fund. The SMSF can now enjoy the advantages of leveraging a larger property to significantly increase the retirement savings of the member. Baby boomers and Gen X’s are keen to bump up their retirement savings so there has been a large interest in this area by them.
You cannot avoid tax but you can control and minimise it:
An SMSF allows you to take a pension (as do all Superannuation Funds) or a transition to retirement pension. If you are over 60 this pension is tax free to you. The SMSF enjoys the benefit of paying 0% tax on the earnings of each pension member, thus increasing the amount left for retirement of the member. As with all sound investment strategies you may not have all of your money in a Superannuation Structure but the money you do have is taxed concessionally. This can open up a world of opportunities and benefits that you may have thought were out of your reach, including Commonwealth Seniors Healthcare Card or even some Aged Pension. Planning for this requires great care and teamwork with your advisors and Centrelink.
Being able to structure and time the pensions can create an amount of control over the tax position of the SMSF. When in pension phase the structure may weight more heavily towards franked dividend entities in order to reap the benefits of the franking credits (franking credits give you a 30% offset that is used against any tax payable by the fund and the remainder is returned to the fund). This can significantly boost the retirement savings of a member in pension phase.
Beginning a pension can cut the tax rate down to 0%, being in a SMSF the accumulation account automatically changes to a pension once the correct documents are signed and a minimum pension is withdrawn, there are no buying and selling of the assets to move them from one phase to another it is all seamless, and can be used as a retirement boost by moving to pension when the assets values are low and then selling the assets further down the track when they are high and you are still in pension phase.
Asset Protection is a must for all people:
A Superannuation Structure provides ample asset protection in the event litigation and bankruptcy, the assets in the SMSF are protected from bankruptcy creditors and ligation settlements (with a few rare exceptions). This leaves the retirement monies free for when you retire.
Enough about the benefits while you are around to enjoy them, in the next issue we will discuss what happens to the money when you pass away – Estate Planning for Superannuation.
Our team at McMahon Osborne Group can assist you in this matter, if you are interested in setting up a SMSF please contact our office to make an obligation free 45 minute appointment to discuss the potential of you owning a SMSF.