The Advantages of a Self Managed Super Fund (SMSF)

Self managed super funds (SMSFs) have gained increasing popularity in recent years. There are various scenarios where an SMSF is appropriate for you and complements your long-term wealth creation needs. In this article we look at potential advantages of a self managed super fund. See past Goggling articles below for more details on SMSF:

Advantages of self managed super funds include considerable investment flexibility subject to strict rules.

Your self managed super fund, can invest in collectibles such as artwork, jewellery, antiques, coins, stamps, vintage cars and wine.

Check out the ATO website for more details on collectibles and personal use assets.

You can also make direct investments in real estate such as residential property or business real property.

Let’s walk through an example as to how an SMSF can be of advantage in the scenario of property investment. You and your spouse are residential property lovers and do not believe in any other type of investments or assets. Over the years, you have accumulated a combined superannuation balance of $300k and want to use this to invest in a residential property.

With the understanding of appropriate money management and debt management strategies including an appreciation of the miscellaneous costs of property ownership, you enlist the help of a financial advisor. You then setup an SMSF and borrow to purchase a $600k apartment or house. You believe when you both decide to retire in 25 years’ time, this property will be fully paid off and worth about $1.6m.

So what happens to this property when you both retire?

Remember that superannuation is a concessional tax vehicle for long-term wealth creation? This is even more so at retirement, as investments inside your superannuation will not be subject to income tax nor capital gains tax.

Furthermore, income you receive at retirement from investments inside your superannuation will not be subject to personal income tax.

For example, you could sell the property and realise a capital gain of approximately $1m ($1.6m less $600k) and not have to pay any capital gains tax on it. You can read more about SMSF and residential property by going to the Australian Securities and Investments Commission ASIC MoneySmart website.

Whether you decide to go with an SMSF or not, consider the following aspects of your money management plan:

Planning for the above will ensure good financial health and wellbeing.