Many Australians want to be more involved with their superannuation. These SMSFs account for approximately one-third of the superannuation fund total.
Let’s Look At Some Of The Advantages Of An SMSF.
Choices For Investment
A self managed super fund loans member has greater investment control than other members, including the ability to invest in residential and commercial property, term deposits, collectibles, direct shares, and other investments, as well as the opportunity to make larger investment decisions, such that they can be compared with retail super funds and industry funds. To hedge or protect your portfolio from downside risk, you will have access to derivatives.
Small business owners should consider SMSFs because they allow them to own business property and lease it back to their business. This provides a steady income for SMSFs, frees up capital, and allows you to grow your business while ensuring that you have a secure tenancy.
Important Rules To Remember:
You, any trustee or other person related to the trustees cannot live in residential investment properties purchased through an SMSF.
Do not buy the “renovator’s dream”. You shouldn’t buy a “renovator’s dream” property. You can’t buy a site for development with plans to build on it later, nor can you purchase an old house that will be demolished and rebuilt.
SMSF Property Loan Risks Include:
Higher interest rates than a regular home loan. SMSF property loans tend to be more expensive than other types of property loans. You can expect to pay an average interest rate of 2% more than for a standard investment property loan.
Cash flow Debt repayments must come from your SMSF. This means that your fund must have enough cash flow to cover the loan repayments. Many SMSF investors opt for high-cash flow properties like commercial property, as the rent, they collect often exceeds the loan repayments.
It is difficult to exit. The SMSF may incur significant costs if the arrangement is not renegotiated or the property is sold. An SMSF should be considered a long-term investment. It is recommended that you buy a property for at least 10 years. Any less will reduce any potential benefits.
R Reduction in Negative Gearing Benefits – You cannot offset any tax or depreciation losses incurred by the property against your taxable income.
No alterations of the property – The SMSF property loan cannot be repaid in full. However, any alterations or improvements that would alter the ‘character’ of the property are prohibited.
Tax Minimisation
Other than defined benefit superfunds (like a government worker fund), most superannuation funds offer the option to receive a tax-free retirement income stream.
An SMSF also offers more flexibility than other superannuation structures in terms of contributions, timing, and allocation of earnings to members, as well as implementing reserved.
This allows trustees and professional advisors to make use of the unique flexibility offered by an SMSF to reduce the overall tax members of the fund pay. They take into account their circumstances and make strategic decisions about contributions, reserves, and distributions. Your unique circumstances will not be taken into consideration in a public offering or ‘pooled superannuation fund’. You are one of many thousands or even millions of members that must be treated equally. The trustee of large superannuation funds may decide to negatively impact your tax situation and there is no way for you to stop this.