SMSF Advantages and Disadvantages

Advantages

• Many business owners hold their business premises in their SMSFs simply for asset protection, succession planning (for the members/beneficiaries), minimising tax, and security of tenancy. If your SMSF is the landlord of your business premises, your business would have to pay rent at market value to your SMSF. In return, the net rental income (after deducting allowable deductions) received by your fund would be taxed at the concessional rate of 15%, and would typically benefit from many of the usual tax breaks available to landlords – including tax deductions for interest on a property loan (applicable to complying funds; a non-complying fund will be taxed at the top marginal tax rate, which is currently 45%).

• With an SMSF, you and the other members are very much in control of making investment decisions as well as ensuring no mistakes are made in running your fund. Unlike large super funds, where sometimes it is frustrating to wait for the correction of your fund balance or for rolling over to another fund, an SMSF allows you to act more quickly and directly.

• SMSFs pool funds from members, and these collective funds have more buying power than a single person could afford on their own to buy an investment asset, such as a property. An SMSF can also apply for a loan to make investment purchases (strict conditions apply), whereas larger super funds are generally not allowed to gear their investments.

• SMSF members have the ability to change their investment portfolio more quickly compared to large super funds, as sometimes there is a lag between when investment changes are requested and when those changes are executed.

• An SMSF enables members to invest in ways that are generally not available in most large super funds. For example, an SMSF can hold direct property, unlisted shares, artwork and other less-common investments, or it can invest in a selection of investment fund managers and direct shares — which large funds may or may not offer, depending on their investment portfolio.

• There is the potential to reduce the administrative costs associated with running an SMSF. For example, an SMSF with a larger fund balance (say $200,000 or more) may pay lower fees as a percentage of its balance compared with large super funds, which usually charge fees based on a percentage of the total fund balance.

• Ability to manage or eliminate Capital Gain Tax (CGT) event. You can eliminate the CGT liability by deferring the disposal of an asset until the asset is backing the payment of a pension.

• Subject to anti-avoidance provisions in the Bankruptcy Act, fund-held business premises are generally inaccessible to trustees in bankruptcy should a member get into future financial troubles.

• Flexible estate planning, a member aged 60 or over can withdraw benefits tax-free before death to avoid potential death benefits tax which may be payable to beneficiaries.