Comparison Summary of Various Superannuation Structures
Self Managed Super Funds – VS – Wrap/Master Trusts – VS – Industry / Retail Fund
The following table summarises the difference between the SMSFs and Wrap/ Master Trusts services:
| Issue / Item | SMSF | Wrap / Master Trust | Industry / Retail Fund |
|---|---|---|---|
| Investment Choice | Unlimited. | Unlimited (except can only do investments, which are authorized by wrap/master trust. We have discussed this with the fund & are of the view that a master trust does not have sufficient investment choice for your purposes). | Limited to Managed Funds. |
| Investment Tailoring | You can buy direct shares or other investments and map the investments to your cash-flow needs (premium payments, property, life insurance). | No choice, as you are at the direction of the Fund Managers and the Fund Trustee. | No choice, as you are at the direction of the Fund Managers and the Fund Trustee. |
| Borrow to buy property or shares | Able to be done in SMSF. | Not possible. | Not possible. |
| Administration | You are responsible, however engaging external providers assists in simplifying the tasks. | Administration completed by Administrator. | Administration completed by Administrator. |
| Pension Flexibility | Can pay two or more pensions. So, is possible to combine an Allocated Pension and a Complying Pension. Can change investment managers and utilise underlying investments without having to change pension provider. | A master trust may allow both a Complying Pension and an Allocated Pension to be paid. You are committed to same pension provider until the pension is exhausted. This may not suit your requirements, if one provider changes their philosophies. | A master trust may allow both a Complying Pension and an Allocated Pension to be paid. You are committed to same pension provider until the pension is exhausted. This may not suit your requirements, if one provider changes their philosophies. |
| Binding Nominations | Yes – means you can leave your superannuation benefits outside of your will/estate. | Yes – means you can leave your superannuation benefits outside of your will/estate. | Yes – means you can leave your superannuation benefits outside of your will/estate. |
| Additional Members | Both of you can join the fund and on retirement both receive a pension. This will not affect the existing pension arrangements. | Not possible. You both need your own Super Wrap/ Master Trust to pay your pensions. | Not possible. You both need your own Super Wrap/ Master Trust to pay your pensions. |
| Pool family assets | Great way to pool your super assets with a partner or extended family and pay one set of fees. An SMSF can have up to 4 members. | Not possible. | Not possible. |
| Tax strategies | Flexibility trustees have over the tax position of the fund. As you move towards retirement phase, there’s a number of financial planning strategies that can be used to help reduce overall tax. | Not possible. | Not possible. |
| Estate planning | SMSFs can allow you to control how your benefits are passed on upon death. With an SMSF, you can tailor a strategy suited to your family situation and intended beneficiaries. | More difficult than SMSF as the Superfund Trustee makes the decisions. | More difficult than SMSF as the Superfund Trustee makes the decisions. |
| Contribution Fees | There are no contribution fees payable. | The industry standard for contribution fees range between 2.2% to 5.5% of the contribution amount. | The industry standard for contribution fees range between 2.2% to 5.5% of the contribution amount. |
| Transaction costs | Investment costs typically range between 1.1% to 2.2% of the value of the transaction (depending on the transaction). | The buy/sell spread is typically 1.1% to 2.2% of the value of the investment. | The buy/sell spread is typically 1.1% to 2.2% of the value of the investment. |
The ongoing costs of SMSF are similar to Master Trust/ Wrap services.
We are in favour of a Self Managed Superannuation Fund because the overall advantages of a Self Managed Super Fund outweigh the costs establishing and operating a Self Managed Super Fund.
More Information on Self-Managed Superannuation Funds
What are the advantages?
In a Self-Managed Superannuation Fund (“SMSF”), you set up and, most importantly, manage and control your own Super funs in order to maximize and control your retirement benefits. Hence, a SMSF gives you maximum control over your superannuation assets and the flexibility to tailor an investment strategy exactly suited to your individual needs. Using a SMSF makes it easier to integrate your superannuation into your overall investment and retirement planning. By adding family members to your SMSF, you are able to pool your super to enable you to invest more effectively.
Investing via a SMSF also has significant tax advantages. By investing through your super you are able to take advantage of:
• The concessional 15% tax rate on earnings and contributions claimed as a tax deduction by you personally or by your business;
• The effective 10% tax rate on capital gains made on investments held for more than 12 months;
• Rebates on contributions made on behalf of a spouse
• A concessionally taxed and benefit;
• Paying Life Insurance premiums through your SMSF (which are generally tax deductible to the Super fund)
What can my SMSF invest in?
A SMSF is able to invest in most assets, similar to any other investor. Shares, commercial property, property syndicates, developments, residential property, managed funds, bonds, cash on deposit, mortgages and term deposits are some examples.
Your SMSF must invest for the sole purpose of providing for your retirement. Existing investment rules mean that the fund is unable to:
• Make loans or give financial assistance to members or relatives;
• Acquire assets from related parties;
• Borrowing by the fund and providing finance to a related employer
Further investment examples are artwork, antiques and other collectible assets, as long as they provide for the retirement of the members.
Existing Legislation requires that all financial transactions occur as they would if they were being conducted at arms length. The appropriateness of SMSF investments is now a key area of regulation, and the investments of a SMSF must consider the needs of the Fund’s members and their Risk Profile.
Legislation has been passed to prevent people from putting inappropriate investments into their SMSF to avoid paying their marginal rate of tax on investment earnings. Inappropriate investments may include purchase of equipment for leasing back to the business, for example, a dentist leasing dental chairs and equipment from a SMSF would in our opinion not be providing for retirement benefits.
Government legislation limits Super funds from having more that 5% of the market value of the funds assets invested ‘in-house’ assets. The major exception is where a fund acquires premises used for business purposes. This may mean that a SMSF may invest in commercial, industrial or retail property, ‘in-house’ includes:
- Investments in related parties, including geared private unit trusts; and/or;
- Investments in related parties, for example, leasing a holiday house back to members of the Super fund.
Can my SMSF acquire my business premises?
Yes. Government legislation has removed restrictions that limited your SMSF ability to acquire your business premises. Your Super fund can now acquire your business premises at market value.
Who should have a SMSF?
SMSFs offer many advantages to small business owners and high net worth individuals. In our experience, SMSF are most cost effective when assets in the fund exceed $50,000. The ongoing management and administration costs are at least $1,000 per annum. In Australia, the average fund has $280,000 in assets and the average holding of each member is approximately $130,000.
A SMSF is best suited to those people looking for maximum control over their Super assets and for those who are prepared to accept the responsibility of being trustee and work at managing the investment. Generally, someone who is willing to take control of their Super and their retirement assets.
Using a SMSF in your over-all investment strategy
A SMSF may, due to its tax advantage status, enable you to undertake different strategies outside of Super. Super may be invested in capital growth oriented assets to utilise the 10% Capital Gains Tax concession while investing in income providing assets to assist your current needs. Using a personal gearing strategy (outside of your Super fund) can further enhance this approach. By using a gearing strategy you may receive a full tax deduction on the interest you pay and are only taxed 50% of the nominal gain if the assets are held for 12 months or more.
What do I have to do on a regular basis to run my own fund?
Each year you are required to:
• Ensure your fund is complying and entitled to the tax concession that apply;
• Lodge a combined compliance return and income tax return with the ATO;
• Keep records in a professional manner, and;
• Adhere to reporting requirements to avoid any loss of the funds concessionally taxed status.
AustAsia Accounting Services have expertise in meeting the administration requirements of the SMSFs. We are able to assist you to meet your obligations and requirements. The Superannuation Industry (Supervision) Act governs your responsibilities as a trustee. Your key responsibility is to provide retirement benefits for members. This usually involves formulating and giving effect to a written investment strategy that considers risk control, diversification and the profile and ages of members of the fund.
Key questions you may need to ask yourself before acquiring an investment for your SMSF are:
• Is the investment for the sole purpose of providing for my retirement?
• Is the investment consistent with my investment strategy?
• Does the investment breach any of the investment standards?
• Does the investment portfolio meet the needs and Risk Profile of the Fund’s members?
AustAsia Accounting Services are able to assist in developing investment strategies that meet the legislative requirements. AustAsia Financial Planning can assist you to source suitable investments for your SMSF, including property syndicates, managed funds, commercial property, shares and other investments.
What are the restrictions?
The Law requires a SMSF to have less than five members and that all members must be trustees or directors of a corporate trustee. No member of the fund can be an employee of another member of the funds unless the members concerned are relatives.
An arm’s length employee of a company, which contributes to the SMSF (in respect of its controllers), cannot be a member of the same fund as the controllers of the company.
How do I establish a SMSF?
AustAsia Accounting Services provide you with a solicitor approved trust deed that takes into consideration your needs and those of any other member of your SMSF. All parties involved must sign the trust deed. AustAsia Accounting Services will also supply you with an election notice form, which you need to lodge with the ATO in order to be treated as a complying fund. The ATO will provide the fund with a tax file number and an Australian Business Number.
How can AustAsia help you?
Through AustAsia Accounting Services and AustAsia Financial Planning, AustAsia can assist you to develop your investment strategy, in order to satisfy the investment requirements governing SMSFs. We are able to assist in restructuring your business affairs so that you may hold your business premises in your super fund, invest in managed funds (includes share, bond, property and cash funds and a range of diversified funds) property syndicates, direct shares and a variety of other investments. They can compliment your existing investments or form the core of your super fund.
AustAsia Financial Planning holds an Australian Financial Services License issued by the Australian Securities and Investment Commission. We are licensed, qualified, and experienced in recommending and implementing Superannuation and investment strategies.
AustAsia Accounting Services is a registered tax agent, and is experienced and qualified to help you meet the legal requirements of a SMSF including record keeping, preparation of annual reports for the fund, and attending to the legislative requirements of auditing, tax returns and the compliance return.