Delving into the dynamics of Self Managed Superannuation Funds (SMSFs) reveals a rapidly expanding sector within the super industry. With a staggering 606,217 SMSFs in Australia as of June 2023, boasting total assets of $889,500 million, their popularity is undeniable, though not universally applicable.
The Pro’s
For experienced investors with a minimum of $200,000 and possessing the acumen to manage their investments effectively, SMSFs present a compelling option. Their appeal lies in predictable administration costs, diverging from retail funds that levy fees based on portfolio size via a percentage based fee.
For example, your SMSF administration costs (taxation and audit fees) may be $2,500. Therefore, if you have a SMSF with a value of $500,000, the equivalent percentage based fee would be 0.50%. If your retail superannuation fund charges 1%, then the fee would be $5,000. As you can see, there could potentially be a significant fee savings.
Business owners might also find strategic advantages in incorporating business premises within their SMSFs, capitalising on favourable tax treatments for rental income. SMSF’s also offer you the opportunity to invest in any asset class you desire, from common asset classes like equities and property, to rare collectables and cryptocurrencies like Bitcoin.
The Con’s
Running your SMSF is complicated and can be time consuming as well, you’ll need a sound understanding of the SMSF laws and regulations to make sure your fund is complaint with current laws. However, you can outsource these duties to other professionals if need be. But ultimately, the buck stops with the trustee of the fund – you.
Another consideration is the need to have a qualified auditor check your fund annually, this is crucial to stay compliant as non-compliance can lead to hefty financial penalties and other possible restrictions.
If conflicts arise among your fund’s trustees, it’s best to handle them privately as unfortunately SMSF trustees and members can’t turn to the Superannuation Complaints Tribunal for dispute resolution. This could end up costing you big in legal fees and strain relationships, especially if the other trustees are family or business partners
Our final word
If you think a SMSF might be right for you, then definitely seek professional advice.
SMSF’s offer the most flexibility when it comes to owning commerical property and other uncommon asset classes. You’ll need to weigh up these advantages versus the costs and trustee requirements of running your own fund.
If you’re considering a SMSF, we’d suggest you speak with a qualified accountant and financial adviser so you can make an informed decision with your retirement savings. Contact us here to discuss if a SMSF is right for you.
