To reiterate some of the benefits, (mainly for the benefit of people thinking of starting one):
1. Tax incentives
Investment income is tax-sheltered within all superannuation funds. Investment earnings are taxed at a maximum 15% tax rate when a member is working and zero when the member is transitioning to retirement (salary sacrifice combined with transitioning to retirement is a “must consider” strategy when you reach 55). On reaching age 60 a member can draw without restriction (or tax) and in the meantime, the portfolio is better than tax free. Imputation credits, which can be offset against earnings tax for working members, receive a cash rebate for non-tax paying pension mode investors. On death, there can be very favourable concessions incluiding tax free payments to dependent beneficiaries.
2. Strategies for the Individual member
A SMSF gives each member the freedom to choose an investment strategy which suits their phase of life and preferences. Sophisticated investors are often comfortable with investing entirely in a diversified share portfolio or an actively managed mixture of assets. By contrast, the typical pooled superannuation fund in Australia defaults to a relatively constant asset allocation across all asset classes. This reduces short-term volatility (eg. normally the fund would avoid a “loss” in any one year), but this is at the expense of long term expected return. To supposedly protect the interest of the marginal retiree in any one year, accumulators and retirees with a ten-year plus time frame are disadvantaged.
3. Retirement pension
A SMSF can be structured to pay you a pension upon retirement. Once the SMSF starts paying you a pension, the investment earnings, including all capital gains, are free from income tax.. At 55, you should seriously consider whether a transition to retirement pension is appropriate for you. It has the same tax rules, but has limitations (upper and lower) on the pension amount each year.
4. Cost efficiency
Most of the administration costs of a SMSF are fixed. A Managed Account provides a timely and audited annual taxation summary for each client. If you wish to segregate assets (to reduce actuarial costs) this can be done too. Your accountant can treat your portfolio(s) within AMA as a single security for ATO purposes and rely on the audited tax summary. This keeps your accounting administration costs associated with owning shares through your SMSF under control because it can be treated as a single share as there is no need to verify individual transactions, holdings, dividends or capital gains and losses.
5. Family benefits
Current regulations allow the trustee of a SMSF to accept up to four members, which is an ideal vehicle for modern families (two or one adult(s) and two children). It enables the trustee of a fund to pay tax-free lump sums to a spouse and to pay concessionally taxed income streams to dependent children in the event of death. More complicated families can set up more than super fund.
A SMSF is fully portable and forever unless you choose not to. It can be used as you change from job to job and can extend beyond one lifetime to the spouse and the children providing it pays a pension to a dependant beneficiary. You can even decide to exit a Managed Account before death and select another investment provider without it impacting on your pension.
One of the most significant advantages of a SMSF is that of investment choice and flexibility. Current government regulation allows SMSF trustees to invest in a variety of assets, which include shares, exchange traded options and property.
8. Life Insurance
A life insurance policy can be tax effectively structured within a SMSF. The premium is treated as a deductible expense