The rules may be changing, but SMSFs are still a good superannuation option

Australia’s superannuation rules may be about to undergo some major changes if the Budget proposals affecting superannuation are passed by Parliament. What are the proposed changes and how does a Self Managed Super Fund (SMSF) still offer tax effective investing?

Forthcoming superannuation changes

Several announcements in the 2016-17 Budget related to superannuation (see our Federal Budget summary). While these proposals are yet to be legislated, these changes are set to have a major effect on contribution limits and terms:

• A $500,000 lifetime cap on non-concessional contributions
• A $1.6m superannuation pension transfer cap on the total amount of accumulated super an individual can transfer into retirement phase
• A reduction in the concessional cap to $25,000 (pa)
• The ability to catch up concessional contributions if the $25,000 cap is not used each year (5-year basis and $500,000 asset limit)
• You would no longer need to meet a work test to contribute up to age 75
• Any individual up to age 75 will be able to claim a tax deduction on personal contributions to a superfund.

In general, the proposed changes (most commencing 1 July 2017) affect high income earners more, particularly the caps.

The advantages of an SMSF

Regardless of the changes proposed, an SMSF can be a great way to invest for your retirement when used properly.

As well as the ability to choose your own investments, you can benefit from potentially lower management fees and lower entrance or exit costs (eg. a direct share portfolio). You can also consolidate the superannuation funds of family members for greater convenience and easier investing.

Take this example of Bob, who has an existing SMSF and is currently in his 60s:

• His SMSF has owned a property for the past 12 years
• Bob now wishes to sell the property, and he is eligible to take a pension
• Before the property is sold, he commences a pension and transfers the property over to the pension phase of his SMSF
• When he later goes on to sell the property, it will be classified as a segregated current pension asset and Bob’s fund will not pay capital gains tax.

What can an SMSF invest in?

With an SMSF, there are restrictions on what you can and can’t invest in.

 

 

 

 

 

 

In some cases, an SMSF can borrow to invest. An SMSF is unable to lend to individual members or family members.

Get professional advice

If you’re considering an SMSF, it’s important to discuss your options to help you determine:

• If an SMSF will suit you and your needs
• The obligations of an SMSF
• Who the members will be
• How the fund will be invested
• If there are any potential liquidity issues.

To find out if an SMSF is right for you, please contact your local Accru office to speak to an advisor.

By Kerry Fisher, Accru Harris Orchard

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_{The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional on whether the information is appropriate for your particular needs, financial situation and investment objectives.}