Self-managed super funds (SMSF) can present genuine benefits – if they’re well run, however they’re not for everyone. If you’re prepared to devote the time needed to run your own SMSF there are many exciting opportunities available.
What exactly is a Self Managed Super Fund?
Simply put, a SMSF is a super fund that you set up with your own superannuation money. You make the decisions and control your investments. That gives you flexibility, but with it comes great responsibility. That’s why you should always understand the risks before you choose to manage your own super fund.
One of the unique advantages is that you can invest directly in property. That means that you can use your super savings in a self managed super fund to buy a house, unit or townhouse. This is known as ‘Limited Recourse Borrowing’.
Many lenders will allow you to borrow money to buy property of this sort – however the main stipulation is that their recourse is limited to the single asset that the money was borrowed against. Therefore, they’ll generally either ask for a larger deposit or a higher interest rate.
Investing in property will give you a range of retirement planning and tax advantages. For example, rent received from the property is paid into the fund and taxed at a maximum of 15% – any expenses can be claimed as a tax deduction for the fund.
Another plus – if you sell property from your self managed super fund, it may incur only 10% Capital Gains Tax (if the property is owned for longer than one year). If it’s sold during the Retirement Phase of your self managed super fund (that is, when you have retired and your sole income is front your super fund), no Capital Gains Tax is payable at all.
Is it for you?
So, is a self managed super fund the right choice for you? As this is a complicated area you need to make sure you first seek out the right advice from qualified professionals. Your financial future is too important to leave to chance.
The contents of this document are intended for information purposes only and may contain personal opinions of the author. It is not intended to be a substitute for specific financial or legal advice. Before making any decisions about a self managed super fund you should consider your personal situation, objectives and needs. While all reasonable care has been taken in the preparation of this information, we take no responsibility for any actions taken based on the information contained in this article or for any errors or omissions.