A SMSF is a superannuation fund that is set up to allow the trustees, usually 1 to 4 people to provide for their retirement.
The SMSF is controlled by the members who are also the trustees.
What is the role of the trustee/s?
As a trustee, you need to adhere to the rules and know that you are ultimately responsible for the running of the fund, even if you use tax, financial and super professionals to help manage it.
Why should I set one up?
The main reason many people decide to set up a SMSF is because they want to have more control of their super and in many cases more flexibility over how their super is invested.
What about Tax?
The SMSF is taxed at 15% on member’s contributions and other income of the fund. An employer or a self-employed person can contribute up to $25,000 as tax deductible contribution and $50,000 if the person is aged 50-74 years.
Are there any Tax Concessions for Capital Gains?
Yes. A SMSF is entitled to a 33.33% exemption for any Capital Gains made provided that the asset was held for more than 12 months.
What about Tax benefits when I retire?
If you are aged 60 or more and are retired, you can receive a lump sum payment or a Pension paid periodically tax free.
What is a Concessional Contribution?
The most common type is Employer contributions which include super guarantee contributions and salary sacriﬁce contributions.
What is a Non-Concessional Contribution?
These are contributions made into your SMSF that are not included in the SMSF's assessable income.
The most common type is personal contributions that your members do not claim as an income tax deduction.
Non-concessional contributions are subject to a yearly cap of $150,000, or $450,000 over a three-year period (for members under age 65). From 1 July 2009, the non-concessional contributions cap is set at six times the concessional contributions cap. If a member's non-concessional contributions exceed the cap, a tax of 46.5% is levied on the excess contributions.
Can I Buy a property in my SMSF?
Can a SMSF Borrow?
Superannuation Legislation changes in 2007 allow a self managed super fund to borrow to purchase an investment property.
Under the new legislation, SMSF are now more flexible and tax effective. It can be the perfect vehicle for long term investments such as property.
Care must be taken to ensure that the structure is set up correctly and the loan sought is a non-recourse loan.
If you are considering this option please ensure that you invest the time to find out what the advantages and disadvantages are about setting up the SMSF with the option to borrow.
If you are intending to purchase an investment property without borrowing, the structure is simpler than the structure required to borrow as you would not need to set up a bare trust and another corporate trustee.
What about tax?
The rental income you receive from the rental property would be taxed at 15% in the SMSF, whereas outside super it could be taxed as high as 46.5% had the property be owned in your personal name.
When you are 60 years of age or over there in is no tax on superannuation withdrawals or pension earnings.
Capital Gains Tax is calculated at 15%, with a 33.33% exemption on assets held for more than 12 months and potentially no CGT is payable when the property is sold when your superannuation is paying a pension.
How will I repay the loan?
The rent that you receive from the rental property as well as your 9% contribution from your employer can be used to pay the loan. You will also need to ensure that other expenses such as council rates and other up keep costs are also paid from the SMSF.
You also have the option to salary sacrifice some of your salary into super. This can be an attractive option for some tax payers.
Of course not everyone needs to borrow to purchase an investment property. Provided that your investment strategy allows it you can also purchase a property with out the need to borrow. This can be beneficial as the structure required to borrow in a SMSF can be burdensome for some tax payersTo find out more about Self Managed Super Funds (SMSF) please contact Marcos Accountants on 02 9893 8600 or email: firstname.lastname@example.org