Servicesself Managed Super (Smsf)

What is an SMSF?

A small superannuation fund is a superannuation fund that has less than five members and includes two categories: SMSFs or Small APRA funds (SAFs).

The main difference between these two categories is the trustee structure. With an SMSF, the trustee entity is generally designed to be the same as the membership. Small APRA funds have an independent trustee, known as a Registerable Superannuation Entity (RSE) licence holder.

The rules that apply to SMSFs and SAFs are broadly the same since both types of funds are regulated superannuation funds. However, different rules do apply in certain circumstances and these are discussed where relevant.

 

Advantages of SMSF's

Control

Control is considered to be a significant advantage of SMSFs and is one of the key reasons why they are established. Control results from the requirement that all members are to be either an individual trustee or a director of the corporate trustee. External parties are not involved in the running of the fund (though certain activities may be outsourced).

Tax Effectiveness

All complying superannuation funds have the advantage of their taxable income being generally taxed at a maximum rate of 15%. Trustees are further able to develop and implement investment strategies aimed at maximising the after-tax return of a fund.

A significant advantage of SMSFs is the tax treatment of the transfer of accumulation assets to the pension phase. Where this occurs, there is no capital gains tax (CGT) payable on the transfer of the asset, as neither the legal nor beneficial ownership of the asset has changed. In addition, if the asset is subsequently sold, to fund pension payments for example, no CGT would be payable on any gains derived from segregated current pension assets as it would be exempt income and therefore tax free. This applies regardless of how long the fund held the asset in the accumulation phase.

Potential Cost Savings

By establishing and managing an SMSF, a person could potentially pay lower fees than those charged by retail or industry superannuation funds.

Ongoing management fees and expenses as a proportion of fund value are usually around 0.5–1.5% p.a. for a retail or industry superannuation fund. This cost has fallen substantially over recent years.

The cost of establishing and maintaining an SMSF can vary widely and is mainly a function of the advice and assistance required from service providers, the composition of the investment portfolio and the degree that the portfolio is traded.