A more tangible approach to saving for retirement via a retail fund, SMSF’s allow people to have ultimate control of their investments and still take advantage of the favourable taxation situation of the superannuation environment.
SMSF’s also offer more flexible estate planning options than your run-of-the-mill retail fund. The division of assets can be left to the discretion of the trustees, and in some circumstances can be allocated in a way that may be more tax effective than usual. As well as having access to binding, non-binding, non-lapsing binding and reversionary nominations, SMSF participants also have the option of making an SMSF will written into the governing rules of the fund’s trust deed.
Assets that are owned outside a fund may be transferred in-specie into the fund via one of the many legislative exceptions, either wholly or by portions. In this way, contributions can be managed, tax deductions maximised and overall tax bills minimised.
However, running an SMSF can be time consuming and require a very detailed understanding of all the laws and forces involved for them to be an effective retirement saving strategy. There can be tax implications, as well as a very detailed compliance process. The ATO, who is responsible for regulating SMSFs, has the power to directly enforce penalties upon non-compliant funds and trustees without needing to go through the court system.
SMSFs are required to formulate an investment strategy that must be reviewed regularly, in line with the trust deed of the fund. Estate planning can become an issue in the event that a trustee is a member of a blended family. CGT events can occur through a variety of circumstances.
SMSF’s are a double edged sword. With expert management and advice, an SMSF is a flexible, well respected retirement savings strategy that offers a level of control and involvement not offered by retail funds. In the hands of the inexperienced, an SMSF can be a recipe for disaster. It is important to consider the requirements and responsibilities, if you are considering, like many other Australians, to engage in a SMSF.