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Self Managed Super Fund (SMSF) Advice
A Self Managed Superannuation fund, or SMSF, is a trust that exists for purposes of investing Superannuation contributions. You can have several members within the fund, and it’s common for husband and wife to create one, possibly with other family members such as siblings. You can make personal contributions and/or receive employer contributions, just as you can with a retail or industry Super.
Difference between a SMSF and an Industry Super Fund
An SMSF is effectively your own personal Super fund, where the member is commonly the trustee, rather than a large company. This means that you are responsible for making sure the fund is compliant and for submitting tax returns. You are also responsible for the selection and maintenance of investments.
Industry Super funds on the other hand are administered by large companies and since they keep the fund compliant, lodge tax returns and invest the funds, they charge a variety of fees. They generally have a limited number of investment options that gain exposure to the main asset classes; Cash, Bonds, Shares and commercial Property.
Benefits of a SMSF super fund
- Setting up a SMSF can be great in terms of the level of control a personal can have regarding their Super assets.
- It also significantly increases the amount of different investment options a person is open to. Traditional Super funds tend to predominantly invest in the five main asset classes; Cash, Fixed Interest (e.g. Bonds), Australian shares, Global shares and Property/Infrastructure. A SMSF on the other hand, as well as investing in such things, could also buy a house or block of land. It could even in rare coins, artwork or other collectibles.
- Many self-employed individuals will buy a commercial premises in their SMSF and then have their own company rent the property. As such every time their business pays rent it is effectively boosting their Super. This is a very effective way to grow your Super on top of the allowable contribution limits.
Who is a SMSF best suited for?
A SMSF typically suits someone who has a minimum of around $200,000 to $250,000 in their Super. This is due to the costs associated with setting up and maintaining the trust.
They also suit those that wish to invest their Super directly into residential property. This is because it is generally not possible to invest in residential property within an industry or retail Super fund.
Many self employed individuals set up SMSF’s in order to purchase a commercial premises that they rent from the Super. That way, the rental income their business pays effectively goes into their Super, similar to contributions, with the advantage that they do not use up the allowable contribution limits.
What kind of investments can be made with a SMSF fund
The range of allowable investments within a SMSF is very broad, and it is essentially anything that can be considered an investment, i.e. that will either generate income, appreciate in value, or both. The more traditional investments include Cash, bonds, shares, Land and Property, but a SMSF can also buy metals such as Gold and Silver or collectibles such as paintings, coins or stamps.
Is property the best investment with an SMSF?
Investing in property can be an ideal option for those with a SMSF. Historically residential property has been an outstanding growth vehicle but it takes time. Since your Super funds are preserved until you retire anyway, property can be a great way to grow your retirement nest egg. When you do retire, you can consider converting to Pension phase, which is a tax-free environment, so in theory you could eventually sell the property with NO capital gains tax to pay.
Within an SMSF, although it requires a second trust to be set up, you can also borrow money from the bank to leverage into property. One might have only $300,000 in their SMSF, but they could possible borrow enough to purchase a property for $1 million.
Step by Step Process for SMSF Planning
The Hudson step by step superannuation planning process is simple;
Step 1: Reach out to one of Hudson’s superannuation advisers through calling 1800 804 296. Matt Paul, will organise a time with you to have your initial meeting with your super adviser.
Step 2: A Hudson Advisor will call you at the allocated time to review your current financial status and to have a general chat about how we might be able to help you. Fees will be discussed at this initial meeting.
Step 3: If we ascertain in our initial meeting that we will be able to add value to your superannuation portfolio, we will then map out goals and objectives that work for you and we will review your current superannuation with a third-party authority so that we can be sure that we are able to offer more competitive fees and better returns than where you are currently invested. After we have conducted a thorough review, we will provide a superannuation recommendation at this stage.
Step 4: We will action your plan and confirm once everything is in place. We will then provide on-going support and assistance to help navigate both personal and legislative changes that may come our way. Adapting to your changing needs is the key to long term success. As part of your initial agreement we will have annual, bi annual or quarterly reviews, but we are always here if circumstances change and you need to speak with us.
FAQs for Self Managed Super Funds
Discover our most commonly asked questions relating to Wealth Management at Hudson.
Is it worth having a SMSF?
It can definitely be worth having a SMSF. It means you are in more control of what you do with your retirement funds. You are not confined to the investment options available under a platform. You can consider investing in one or even multiple residential properties. You can leverage your Super and borrow money from a bank to purchase a property for more than you have as a balance in your Super. These days, the running costs of a SMSF are far less than they used to be. Speak to a Hudson adviser to find out more.
Is property investment a common investment with an SMSF?
It is very common to purchase property in a SMSF. In fact it is one of the only ways you can purchase residential property using your Superannuation funds.
Can I live on property owned by my SMSF?
No, there are strict compliance rules relating to SMSFs including the “sole purpose” rules, whereby investments must be solely for purposes of providing for your retirement and you must not benefit from the investments prior to that time. As such, were you to purchase property in a SMSF, you could not live in the property, and it would need to be leased in order to create an income.
Do I need a financial advisor for my SMSF?
It is advisable to seek advice relating to any Superannuation investments including those within a SMSF. An adviser can help you work out what investments suit you and your desired outcome. This may include advice relating to Property and/or shares, preferably both in order to provide added diversification and reduce risk.
How much does it cost to run a SMSF?
It costs approximately $2,000 to set up a SMSF and the ongoing annual cost can range from $800 to several thousand dollars a year. Hudson Financial Planning have access to an experienced SMSF accountant that charges from $1,300 p/a.
Can I set up an SMSF myself?
It is advisable to seek professional advice if considering setting up a SMSF, both from a licensed tax agent and also a financial adviser. The tax agent will ensure that you stay compliant and so are not subject to fines or penalties. The adviser can make sure that you consider suitable investments and can help you manage them over time.
Do I need an Electronic Service Address (ESA) for a SMSF?
Yes, an ESA is required for an SMSF. This ensures you meet all technical requirements for interacting electronically across the Super network.
Contact Hudson for SMSF Advice today
Your superannuation is an integral part of your wealth creation process.
Consider allocating the Hudson Financial Planning as your financial adviser for your superannuation funds.
This will allow your Hudson adviser to monitor and review the performance of your super and help you to ensure that your funds are allocated in the most appropriate investment vehicle for your situation, your risk profile, and your long-term goals.