Benefits and restrictions relevant to Self-managed Superannuation Funds

Before considering a Self Managed Superannuation Fund (SMSF), please note the following compliance restrictions relevant to SMSFs:

  • Lending to members and their relatives
  • Acquiring assets from 'related parties' of the fund
  • Borrowing apart from limited recourse borrowing arrangements
  • Investing in 'in-house' assets
  • All investments need to follow the two main rules: "sole purpose test" and "arms length"
  • It is the duty of the SMSF trustees to separate the SMSF assets from their own personal assets, or assets belonging to their business
  • There are maximum contributions limits to a DIY Super Fund
  • SMSF assets cannot be used for personal or business purpose, this representing the "sole purpose test" i.e. the funds in the SMSF are for retirement purposes only, and cannot be accessed generally until retirement

Money from the fund must not, under any circumstance, be used for personal or business purposes, as mentioned above. The fund's assets must not be viewed as a form of credit or emergency reserve, should the need arise! The main purpose of the superannuation investment is to generate and grow retirement benefits for the members.

There are risks, costs and charges in choosing to invest in superannuation and self managed superannuation in particular applicable laws may change! There are also risks associated with choosing particular investments – all investments are subject to varying risks and generally all change in value. Different asset classes perform differently at different times.

Adequately considering existing insurance held in superannuation prior to switching over to a SMSF should be discussed with a licensed financial advisor.

Speak to a licensed financial advisor to consider your personal objectives, financial situation and needs before proceeding with any investment including the suitability of an SMSF!

Before embarking on an SMSF you should also visit the ATO web site as the ATO regulates SMSFs and provides useful information about the obligations and duties of trustees in managing an SMSF. You need to know that managing your own superannuation is a major commitment that can be expensive and involve significant time and effort. SMSFs are not for everyone. You should consider your personal circumstances carefully before deciding to establish an SMSF.

The Australian Taxation Office also provides free online courses for SMSF trustees:

To help you make more informed decisions, ASIC has a factsheet, SMSFs: Are they for you? for consumers and SMSF trustees deciding or reassessing if an SMSF is appropriate for them. Self-managed superannuation funds: Are they for you?

Taxation rates of superannuation funds

Description   Tax Rate
Exempt Current Pension Income Nil
Complying Super Fund 15%
No TFN Contributions Income 47%
Non-Arm's Length Income 45%*
Non-Complying Super Fund 45%*
* Plus 2% Temporary Budget Repair Levy until 30 June 2017

There are numerous benefits of having your own DIY Super Fund. Here is a list of some of them:

  • Self Managed Super Funds are allowed to control the timing of disposal of assets. This means that if you acquire an asset today and it appreciates by X % by the time you retire, you can roll it over to your pension fund and you will pay 0% tax on the realised capital gain of that asset
  • 10% tax payable on earnings from a Super Fund applies to assets disposed after having them for a minimum of 12-month period
  • Maximum tax payable on earnings from a Super Fund is 15% (this can be offset by imputation credits, currently at 30%)
  • Minimum tax payable on earnings from a Super Fund can be 0%
  • DIY Super Funds' assets are in most cases protected from bankruptcy
  • SMSF' assets can invest up to 100% of the funds total assets in "Business Real Property" (fund members can use the money from the DIY Super Fund to obtain a real estate property for their own business)
  • Limited Recourse Borrowing Arrangements
  • Super Funds allow for tax-deductible insurance premiums. Note: the insurance policy must be in the name of SMSF with a member/members named as the insured person/s.
    Type of Policy   Deduction
    Whole of life policy 30%
    Endowment policy 10%
    Term Life 100%
    Any Occupation TPD* 100%
    Own Occupation TPD 67%
    Death & own Occupation TPD bundled together 80%
    * TPD: Total and Permanent Disability
  • DIY Super Fund can generally invest in: - Share market
    - Money market
    - Managed funds
    - WRAP Accounts
    - Ventures
    - Real estate
  • SMSF can invest in / or with other Super Funds, Fund Managers and Master Trusts
  • Can bank with any bank
  • Can use any share trading institution
  • Can have insurance with any insurance company
  • SMSFcan use any independently selected financial planner, accountant or tax planner/agent.
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