In 2022 Tax Tips

SMSF Financial And Taxation Advice

An SMSF, or self-managed superannuation fund, is a great way to save for retirement and manage your tax situation. 

However, it’s important to get the right financial and taxation advice to make sure you’re taking advantage of all the benefits an SMSF has to offer. This blog post will discuss some of the key considerations when setting up an SMSF and provide tips on how to get the most out of your fund.

If you’re nearing retirement or have already retired, you may be considering setting up a self-managed super fund (SMSF) to manage your finances. While SMSFs can offer a range of benefits, it’s important to seek financial and taxation advice before setting one up. This article will outline some of the key considerations when establishing an SMSF.

SMSFs (self-managed superannuation funds) are becoming an increasingly popular way for Australians to save for retirement. But setting up and running your SMSF can be complex, so it’s important to seek financial and taxation advice from a professional who knows what they’re doing.

If you’re like most people, you probably think of your SMSF (self-managed super fund) as a complex financial entity that’s best left to the experts. However, it’s quite easy to manage your SMSF with the right advice and some basic knowledge. 

In this post, we’ll give you a brief overview of SMSFs and their taxation rules, as well as some tips on how to get started. So if you’re thinking of setting up an SMSF or want to know more about them, keep reading!

As an Australian SMSF trustee, you have a legal responsibility to ensure the law manages your fund. This includes understanding and complying with all relevant financial and taxation requirements

Seeking professional advice is essential to fulfilling your obligations and protecting your financial interests. In this blog post, we explore some of the key financial and taxation considerations for SMSFs and provide tips on how to stay compliant. 

If you’re looking for information on SMSF financial and taxation advice, you’ve come to the right place. This post will provide an overview of what SMSF advice entails and discuss some of the key considerations to bear in mind when seeking out help from a financial advisor. 

So whether you’re just starting out with SMSFs or are considering making changes to your current arrangements, read on for some valuable insights into this complex area of finance.

You probably think of SMSFs (self-managed super funds) as only for the wealthy. But that’s not always the case. There are several reasons why an SMSF might be a good option for you, regardless of your income level

In this post, we’ll look at some of the key financial and tax considerations when setting up an SMSF. So whether you’re already familiar with SMSFs or just starting to explore them, hopefully, you’ll find this information helpful!

If you’re a self-employed person or operate your own small business, then you may be wondering about the best way to set up a retirement savings plan. A Self-Managed Super Fund (SMSF) can be a great choice for those looking for more flexibility and control over their retirement planning, but it’s important to get the right advice when setting one up.

You probably don’t give much thought to your superannuation until it’s time to contribute. However, several financial and tax considerations come into play when you have a self-managed super fund (SMSF). That’s why it’s important to get expert advice from an SMSF specialist who can help you make the most of your fund and avoid any potential pitfalls.

SMSFs have become a popular investment choice in recent years, but with this comes extra responsibility for financial and taxation advice. This blog post will outline some of the key things you need to take into account when seeking advice for your SMSF. We’ll also highlight some of the benefits of using an SMSF and how to find the right financial advisor for you.

Let’s get started!

Considering a Self Managed Superannuation Fund (SMSF)?

In Australia, there are over 1 million people who have made the step to control their super and set up their own Self Managed Superannuation fund (SMSF). The Self-Managed Super option is no flash in the pan; the sector now represents a combined asset value of over $550 billion.

The reasons for this are numerous, but we find the control is the number one driver; control over investment decisions, control over asset allocation, control over fees and control over assets.

Australians wanting to take advantage of tax strategies that are not available in retail funds is also a major factor for setting up an SMSF.

What Is A SMSF?

The term is pretty descriptive: a ‘self-managed super fund’, this is a superannuation trust structure that is focused on providing benefits to its ‘members’, a collective group who are all recognised as trustees, upon retirement. 

To be considered an SMSF, the super fund must have a maximum of four members, where members cannot be paid for their role as trustees, each member must be a trustee, and no member can be an employee (unless they’re related).

SMSF Benefits

It’s essentially taking a ‘DIY’ approach to retirement money management and superannuation funds. Still, many Australians are attracted to SMSFs because they have a greater knowledge of investing — and so they want greater control over their superannuation finances. 

Besides this, members are usually well-versed in wealth-building strategies. They believe they can do a better and more efficient job, with greater and more strategic returns, than existing fund’s trustees. There is great flexibility in the kinds of investments open to SMSF trustees and better tax benefits. For estate planning, SMSFs provide special superannuation death benefits.

The benefits of self-managed super for those with substantial amounts to invest are manifold. Most importantly, it gives control of your investments to you rather than a fund manager. There are also opportunities to leverage an SMSF for some clients for both business and personal advantage. 

For example, for our medical and small-medium business clients, it can be a tax-effective option to purchase their consulting rooms or business premises through an SMSF, then effectively pay rent to themselves.

SMSF Tax Basics

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Self-managed super funds can offer trustees more control over the taxation of their super, but like all aspects of SMSFs, some rules apply.

1. The ground rules on tax

An SMSF is treated the same as retail, industry and corporate funds for tax purposes. However, in an SMSF, you have greater control of taxation matters. 

The control and flexibility SMSF trustees have over your SMSF investment decisions allows them to determine when an asset is sold, which could affect when any relevant taxes are paid. 

The current tax rate on earnings within a superannuation fund (including an SMSF) is 15%. Still, where the income is produced by assets wholly supporting an income stream such as a pension, there is no tax payable within the fund on that income.

The ATO outlines the assessable income for a complying SMSF, which includes:

  • employer and personal deductible contributions
  • interest, dividends and rent
  • net capital gains (less total capital losses; and less one third capital gains tax discounts for an asset owned for a year or more).

2. Non-arm’s length income

The ATO also defines activities and investments outside the 15% tax rate, including non-arm’s length income, taxed at the highest marginal tax rate. Non-arm’s length income includes income:

  • derived from a scheme or investment in which the parties are not dealing with each other at arm’s length
  • where the amount is more than the amount that the SMSF might have been expected to derive if those parties had been dealing with each other at arm’s length
  • income derived by an SMSF as a beneficiary of a discretionary trust.

Other types of SMSF income are taxed at different rates, such as:

  • contributions made where the SMSF does not hold the member’s Tax File Number (TFN) on file. Referred to as “no-TFN contributions, ” taxed at the highest marginal tax rate.

3. Avoiding tax penalties – keeping your SMSF compliant

You can’t lend money to yourself or any other trustee or the relatives of trustees. If your SMSF lends money to a trustee or a relative, the ATO could declare your fund non-compliant and levy significant tax and penalties.

4. In-house assets

SMSF assets cannot be used for personal benefit. Buying a holiday house for your private use is not allowed. It may be permissible if your SMSF buys that very same holiday house and only rents it out to non-related parties.

No more than five per cent of your SMSF can be invested in ‘in-house assets’, such as an investment in your own businesses. The rules regarding in-house assets are complex, and you should seek independent advice.

5. The value of compliance

Australian tax laws concerning SMSFs are complex, so you should ensure your accountant, financial planner, or financial adviser is qualified to provide you with specialist SMSF advice. Knowing what you can (and cannot) do empowers you with the knowledge to take advantage of the control and flexibility which SMSFs may provide.

Tax Time: Do You Really Need An SMSF Accountant?

1. Maybe not, if your fund has a straightforward investment strategy

If you’ve set up a pretty straightforward investment plan and the assets you’ve chosen aren’t complex, it might not make sense to pay for the expertise of a traditional accountant. Technology offers a lot more now than it did even five years ago for managing your fund. 

The future of SMSFs is heading towards high visibility of investments and technology platforms that will take the hassle out of SMSF administration. This is where Selfmade fits in. We can help maintain your SMSF while getting the professional financial advice you need separately.

2. We are like an accountant, but so much more

We’ve built a responsive, intuitive, and technologically advanced platform that also gets your SMSF administration and tax tasks are done with ease. 

We offer SMSF establishment for $950 (plus some government costs) and ongoing help for $990 annually (or starting at $82.50 per month) – including all the paperwork, help with tax returns and SMSF audits!

3. What does an SMSF accountant do?

Traditionally, an SMSF accountant deals with what has already happened in your SMSF. They typically take the paper trail of what you did in the previous financial year and form a coherent picture for tax and record-keeping purposes. 

They can also help with certain administrative tasks and lodging tax returns. Costs can vary depending on the level of advice – make sure they have an Australian Financial Services License (AFSL) – and often, it will set you back around $2,000 to $4,000 each year. That’s money you would rather use for other things, right? 

More and more SMSF trustees are turning to technology for their SMSF administration instead of traditional accountants. Why? Well, since the very beginning of self-managed super funds, accountants have been the go-to source for advice on set-up and SMSF management. However, even though that advice has always been quite limited, the regulatory changes that came into effect from 1 July 2016 have restricted accountants even more. 

If you’re new to running an SMSF, your fund’s administration – and first tax return – can be a daunting process. There’s a lot of paperwork to keep track of – ideally, something you manage during the year – and the dates for submitting your annual return can differ, depending on how old your fund is. 

4. You might still need a traditional SMSF accountant if you have a complex SMSF

If your fund invests in direct real estate or unlisted securities, for example, an accountant might be the best option. Unfortunately, however, only a small percentage of SMSFs invest in these things.

3 SMSF Myths Busted

Self-managed superannuation funds, otherwise known as an SMSF, can be a great way to have control over your retirement by taking matters into your hands. Unlike industry or retail super funds, which have a fund manager, an SMSF puts you in the driver’s seat. 

Being self-managed, you essentially take responsibility for all investments, insurances and management decisions. However, as you are essentially taking matters into your own hands, SMSFs are regulated by the Australian Taxation Office (ATO). As a result, SMSFs have come under the microscope in recent years, and pundits have questioned their usefulness or legitimacy.

Here are three myths about SMSFs you need to know about when considering whether an SMSF is right for you:

 Myth #1: You need to be wealthy to have an SMSF

While this figure is commonly referenced when talking about an SMSF, it’s somewhat an urban myth. According to the Australian Securities and Investments Commission (ASIC), no mandatory minimum balance is needed to open a self-managed fund. 

In saying that, it is recommended you have a large opening balance, a figure of around $200,000. It’s worth mentioning this guide exists for a reason as there are administration and compliance fees involved in managing an SMSF. For funds with low balances, it may not be worth it.

ATO data for the 2014-15 financial year showed nearly 25% of SMSF funds had a balance between $200,000 and $500,000. So think of it more as a guide than a minimum amount; there’s no blanket rule for whether an SMSF will work for you. Before jumping to conclusions, talk to an SMSF adviser to see what makes sense for you.

Myth #2: SMSFs are too risky

Where retail and industry superannuation funds have fund managers who generally make investment decisions on behalf of the fund, self-managed super funds are managed by their trustees. 

With the responsibility sitting on your shoulders, there’s an element of risk when making complex financial decisions. But, like other investments, balancing risk and reward comes down to getting the right advice and making smart choices.

As a trustee of an SMSF, you’ll need to have the skills and understanding to manage your investments and your fund. The ATO heavily regulates SMSFs, and failing to comply can leave you with a range of penalties and fines. 

To reduce your risk, always seek professional advice and make sure you regularly review your investment strategy to factor in diversification, liquidity, solvency and insurance requirements of the fund.

Myth #3: SMSFs are a simple way to buy property

While trustees of an SMSF can choose to purchase an investment property as part of their portfolio, it’s not as simple as it sounds. Acquiring property through a self-managed super fund is more challenging to manage and regulate than independent property investment. 

As our recent article outlines, property purchased through an SMSF can’t be lived in or rented by you, any other trustee of your SMSF or anyone related to the trustees – even your fourth cousin. Further, you can’t contribute existing property into an SMSF, even if it’s purchased at market value.

When it comes to SMSF and residential property, the bottom line is any related parties cannot benefit from the property in any way.

Whilst it is permissible to obtain finance to purchase a property in an SMSF, it is commercially becoming more difficult as the big four banks, along with some second-tier lenders, no longer lend money to self-managed super funds.

FAQs

finance and accounting concept. business woman working on desk

1. Can accountants set up SMSF?

Accountants can still provide SMSF set-up services if they don’t advise clients to establish an SMSF or dispose of an interest in a superannuation product. An SMSF accountant can only guide clients through setting up the fund and provide advice on compliance matters.

2. Can I lodge my SMSF tax return?

Currently, there is no direct ATO portal for SMSFs, but you can lodge your annual tax return electronically or by paper with the ATO. If lodging electronically, you must have software supporting electronic lodgment by Standard Business Reporting.

3. What can I invest in with my SMSF?

Managing your own super fund can give you access to a broader range of investments on top of the usual shares, term deposits, managed funds and property. In addition, with Selfmade, you can take advantage of extra investment options such as exchange-traded funds, mFunds and warrants.

4. Why choose an SMSF over a regular super fund?

There are pros and cons to both SMSFs and industry super funds.

SMSFs provide more options and allow you to have direct control over your money. This can make them suitable for people who have quite a bit of super and understand finance and tax laws. 

By contrast, industry super funds usually offer simplicity and lower fees – plus the ability to support your industry.  

5. Is an SMSF right for me?

Managing your own super allows you to control exactly where your savings go, but, unlike going through an industry super fund, it requires more monitoring and management on your part.

This is a big decision to make, and one that should be made carefully, with discussion and advice from your family and financial advisers.

6. I want to contribute extra money to my superannuation account. Are there superannuation contribution limits?

There is a limit to the amount of money you can voluntarily contribute to your super fund on a concessional basis. This is because superannuation contribution limits operate to limit each year’s tax benefits.

Making contributions over the limits results in additional tax payable, and excess concessional contributions are counted towards the non-concessional cap. 

Concessional contributions are essentially those contributions that are tax-deductible and include employer contributions and personal contributions claimed by the self-employed. 

The current concessional contributions cap is $27,500 per annum regardless of age. 

If you are older than 67, you will need to meet a work test to contribute to super in most cases. You need to work for at least 40 hours during 30 consecutive days at any time during this financial year to make tax-deductible and non-deductible contributions to super.

Non-concessional contributions are those made from after-tax income. There is no contributions tax applied when they are contributed to the super fund. However, the normal fund tax rates apply to earnings once in the fund.

The non-concessional contributions cap is $110,000. It follows that  $330,000 can be contributed over the three-year fixed period under the ‘bring forward rule’.

If you have a total superannuation balance of close to $1.6 million, you can only access the bring-forward rule for the number of years that would bring your balance to $1.6 million. 

Once you trigger the bring-forward rule and your balance reaches $1.7 million, you can’t make any further non-concessional contributions even if you still effectively have not fully used up the remaining of the bring-forward cap triggered.

If you triggered the bring-forward rule before 2016/17, but the full $540,000 was not contributed, you will be limited to a transitional bring forward cap.

If you are over 65, you cannot utilise the ‘bring forward’ rule, even if you meet the work test.

7. I am over 60 years of age and retired. Will my superannuation pension be tax-free in future?

People who have reached 60 no longer pay tax on superannuation income streams (pensions or annuities) paid from a taxed fund. A taxed fund is one where contributions tax was paid on the contributions made by your employer into your super fund on your behalf.

Contributions tax would also have been paid for contributions made under a salary sacrifice arrangement. Most funds are taxed funds. However, taxpayers who belong to an untaxed super fund will still have to pay tax on their superannuation income stream, irrespective of their age.

Taxpayers over 60 years of age (for the full financial year) and receiving a superannuation income stream from a taxed fund no longer receive a PAYG Payment summary.

8. Why am I asked to tell my superannuation fund what my tax file number (TFN) is?

Suppose you do not tell your superannuation fund what your TFN is. In that case, the fund will be required to pay additional tax on any contributions made by your employer (including salary sacrifice amounts).

Without having your TFN recorded, your fund will not accept any personal contributions that you make, and the government co-contribution you may be entitled to cannot be paid into your account.

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