The smsf industry has largely risen from the ashes of 2008 and is now the fastest growing sector in the financial services industry with over 25,000 new funds being set up in 2011.
Self managed super funds allow people to significantly reduce their tax by diverting more of their salary to their smsf via a salary sacrifice arrangement. This is often achieved with a transition to retirement income stream in place. Deductible super contributions are only taxed at 15%, which is significantly less than the highest marginal tax rate of 46.5%. On top of that, the earnings of the smsf are only taxed at 15% whilst it is in accumulation mode, and completely tax free when it is in pension mode.
Whilst the benefits of a self managed super fund are extensive, there are a number of issues that need to be considered when setting up a smsf. First of all, it is important to consider your retirement plans. If you’re intending to retire in the next 5 years, your smsf investment strategy would likely be more conservative than if you were intending to retire in 25 years. You also need to consider what kinds of investments you want to make, and whether those investments are consistent with the sole purpose test. As a rule of thumb, self managed super funds must make conservative investments and must maintain a balanced portfolio.
Maintenance of your self managed super funds is an issue that your tax accountant can advise you on. Every smsf must have annual financial statements prepared and audited by an approved smsf auditor, which can make compliance costly. Whilst there are a number of smsf providers that will offer an attractive compliance cost, they are generally subsidizing this with financial advisers fees so it is imperative that you read the fine print.
You need to be sure that your smsf compliance is handled by a professional accountant with significant experience in this specialised area. Self managed Super Funds that breach the law could be deemed non-compliant and taxed at the highest marginal rate of tax in Australia. All self managed super funds must be setup and run in accordance with the Superannuation Industry Supervision Act 1993 (SIS Act). All breaches of the SIS Act must be reported to the Australian Taxation Office and penalties for material breaches will be at the discretion of the Commissioner of Taxation.
Take action now – talk to us about your SMSF.