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Self Managed Super Funds- SMSF

What is a Self Managed Super Fund? 

 

Self Managed Super Funds (SMSFs) are the fastest growing area of the superannuation industry in Australia.  This is because they offer a range of advantages over other super funds including: greater control over how their assets are invested, ability to manage tax outcomes and potentially reduced costs.

 

With this control comes responsibility, as SMSF trustees need to have sufficient time to run their own super fund and ensure compliance with the law.  Birchcorp has provided an option for you to have your cake and eat it (refer to Birchcorp SMSF Services to see how we can  help individuals manage their SMSF.  You may now get the benefits of an SMSF while passing the compliance responsibilities to us.  Most industry observers think that you need at least $200,000 for an SMSF to be cost effective.  This statement is inaccurate and dated. It has changed in recent years due to the ability of super funds to borrow, and the reduced charges on the accounting, compliance and auditing.
 

In simple terms a superannuation fund is a structure that helps you save for retirement and the government supports through reduced tax rates on investment earnings (around 15% in super accumulation phase, and 0% if you are drawing a pension) instead of your marginal tax rate outside super.  In return for these tax concessions the government won't allow you to access your super until you retire (other than in exceptional circumstances).
 

In terms of Superannuation monies, 40% of all super monies are invested in Self Managed Super Funds.

 

The members, as trustees, make all the decisions about  how the fund is run, the investments it holds and the type of benefits it can pay. The members of the SMSF are also personally responsible for complying with the law and  completing all the relevant paperwork required by the Australian Taxation  Office. We recommend you consult a professional if you are thinking of setting  up a SMSF as they are not suitable for everyone. If you would like to run a SMSF but do not have the skills, Birchcorp has developed all the systems and processes that allow you to enjoy the benefits of a SMSF whilst we manage the compliance and regulatory aspects.

 

SMSFs can be structured to allow a member's benefits to be paid to specific beneficiaries. They can also be structured to allow a member's death benefit to be paid to a range of beneficiaries in the most tax-effective manner at the time of death.

 

Asset Ownership

 

There are significant bankruptcy / litigious benefits to having your assets in the name of the corporate trustee of your SMSF. Wealth protection would be the single most important reason for not placing all your assets in your individual name. Other benefits may include land tax, income tax and CGT minimisation.

 

Control over your Investment Decisions

 

A SMSF allows you to control exactly how you invest your superannuation.  As a trustee of your fund, you are responsible for investing the fund's assets to provide retirement benefits for the members.  Having control over the investment decisions can provide a number of advantages.  For example, a SMSF can invest in a wide range of investments including:

  1.         Direct Property
  2.         Shares
  3.         Bank Deposits, cash
  4.         Bonds
  5.         Managed Funds

 

Reduced Costs

 

SMSFs can also allow people to reduce the fees levied on their retirement savings by taking responsibility for, and managing, their own fund.  It is generally considered uneconomic to run a SMSF with less than $75k if reducing fees is your main aim.  However, this can vary depending on a number of factors including how and with whom you set up your SMSF. 

Remember a SMSF may have up to four members. In some cases costs for annual administration is then divided between four people. This significantly reduces the cost of an SMSF. This effect is also felt by SMSF's with two members.

 

Additional Tax Concessions

 

The ability to target share investments that pay a high level of franked dividends, which can then be used to offset the 15% tax payable on the fund's assessable income is a significant upside for an SMSF. Refer Tax Savings

In addition to the existing tax concessions that apply to all super funds, SMSFs have a number of tax advantages that can help maximise your after-tax retirement benefits.  These include:
 

  1. The ability to convert assets within the fund to tax free pension assets when you retire and allow your fund to avoid capital gains tax. This is particularly important with bulky investments such as property.
  2. The strategic use of reserves.
  3. The use of rolling back and subsequent roll forward of funds from Accumulation to Pension Accounts.
  4. Transition to Retirement Strategies.
  5. Estate Planning.

 

Estate Planning Advantages

 

SMSFs can be structured to allow a member's benefits to be paid to specific beneficiaries.  They can also be structured to allow a member's death benefit to be paid to a range of beneficiaries in the most tax-effective manner at the time of death.

 

Asset Ownership

 

With a SMSF you can transfer personal shares and business property into the fund (in specie), subject to various regulatory provisions.

 

You need to be prepared

 

You need to be prepared to  make investment decisions, keep records and deal with the range of other administrative and compliance matters to keep your fund running in accordance with the law.  Though many trustees outsource aspects of running their fund to specialist service providers, they retain overall responsibility for:

  • Maintaining all records of the fund
  • Establishing and implementing the fund's investment strategy
  • Complying with all regulations under the Superannuation Industry (Supervision) Act 1993
  • Lodging tax and regulatory returns
  • Keeping up to date with changes in the law to ensure the fund remains compliant

 

The penalties for not complying with all the laws and regulations can be severe.  These include applying higher taxes on the fund, freezing the assets of the fund and criminal prosecution of the trustees. 

 

While a SMSF is great for some people, they do not suit everyone. Managing your super takes time, knowledge, skills and money. So before deciding to set up a SMSF it is important to understand what is involved in managing your own fund and what it means to be a trustee. Ensure you are setting up the fund solely to pay retirement benefits to members. Birchcorp will guide and help manage all the above mentioned factors and show you how an SMSF is a cost effective way to save for retirement.

 

As a side, when making large investments or leveraging with your super, it is paramount to have your SMSF insure your compulsory super guarantee contributions. Income protection and life insurance are critical for existing members. Please ask Birchcorp the most suitable arrangement to cater for this aspect of your Financial Plan.

 

To determine if an SMSF meets your personal Financial needs and reqiurements please Enquire Here to meet with a Birchcorp Financial Planner.


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Birchcorp Pty Ltd ABN 56 132 775 654 is a Corporate Authorised Representative (No. 339299)
of Dover Financial Advisers Pty Ltd ABN 87 112 139321, which is the holder of an AFSL No. 307248. Birchcorp Pty Ltd is an Accredited Member of the FBAA with an ACL No. 376718.