Have you considered a Self-Managed Superannuation Fund (SMSF)?
As at 30 June 2014 there are roughly 534,000 Self-Managed Superannuation Funds in Australia totalling assets of $557 billion. That’s 1/3 of the Australian superannuation pool assets.
SMSF provides the opportunity for you to have a say in what your fund invests in, as well as cut down on annual compliance costs. In order to make an SMSF affordable compliance wise, the estimated start-up balance required of the fund is $150,000.
A SMSF can have up to 4 members, meaning you personally don’t need $150,000 to get started - split evenly you could get started on as little as $37,500 each (based on 4 members).
You could engage financial planners or stock brokers to do the investing for you, or take full control and DIY.
24 September 2007 marked an important date in Australian superannuation history. This day marked the beginning of limited recourse borrowing arrangements (LRBA) for SMSFs. This allows SMSFs to borrow money to buy a single asset as long as the lender’s recourse is limited to that asset only in the event the SMSF defaults on the loan. The most commonly LRBA asset is property. This opens the door for those looking to invest in the property market that are short on disposable cash to use their superannuation to invest.
Superannuation is a long term investment vehicle providing many tax concessions for those willing to put their money away for the future.
Some of the tax concessions include;
• Profits earnt on investments taxed at 15%
• Concessional contributions (contributions that you or your employer received a tax deduction for) taxed at 15%
• Personal contributions can be tax deductible to you personally. This can mean if you contribute or salary sacrifice and are in the 34.5c tax bracket ($37,000 - $80,000) you will create a tax savings of 19.5% per dollar contributed. Eg salary sacrifice $10,000 and you’ll have a net tax saving of $1,950 through your tax return.
• Capital gains taxed at 33%, if asset held longer than 12months then 10%
• Pension income streams paid after 60 years of age are generally tax free
It’s not all sunshine and roses; there are some negatives to SMSF’s and superannuation in general;
• Highly regulated industry with strict guidelines
• Open to legislative change between now and when you retire (but what isn’t?)
• Money is locked away until at least 55 years of age unless you pay your marginal tax rate on any early drawings (which are very difficult to access)
Everyone’s circumstances and goals are different, but one thing we all have in common is the need to plan for the future. That’s as much applicable to a 25yr old as it is to a 50yr old, it’s just a different needs and approach for each.
If you would like further information regarding superannuation, SMSF’s, LRBA’s or retirement planning please contact us.