A self managed super fund comes with responsibilities

A self managed super fund comes with responsibilitiesSelf managed super funds to come under increased scrutiny

Self managed super funds (SMSFs) are being set up at a faster rate than ever before. They’re now the fastest growing sector of the superannuation industry and account for around one third of total superannuation assets in Australia (see chart below).
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Borrowing to buy property within Super: Buyer Beware!

Borrowing to buy property within Super: Buyer Beware!

Just because you can doesn’t mean your should

Borrowing to buy property within a Self Managed Super Fund (SMSF) has been promoted by many within the advice industry as an exclusive opportunity you should seriously consider. And, while there can be occasions where this strategy makes sense, as a general rule the fundamentals just don’t stack up.

Back in 2007, the Government opened the door for SMSFs to borrow. The change was driven by the popularity of investing in instalment warrants (such as Telstra’s T3 offer). These investments had an element of gearing which created some confusion under the no borrowing restrictions of the Superannuation Industry (Supervision) Act. To over come this, the Government decided to remove the borrowing restriction.

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Dividend imputation and super funds: debunking the myth

Dividend imputation and super funds: debunking the mythA focus on imputation credits in super only adds to risk

Many investment advisers and accountants who provide advice to self managed super fund clients insist on investing in shares that pay fully franked dividends. We’re not sure why. Perhaps they believe in some magical additional benefit that dividend imputation credits offer super funds. It’s a pretty simplistic approach to investing which has little foundation when you delve a little deeper.

The downside of this lopsided strategy is to sacrifice prudential portfolio management in favour of tax strategy. Most dividend imputation funds have a modest skew towards “value” stocks and while this strategy may pay off (in times when value stocks, such as banks, outperform the broader market), it may just as likely under perform.

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Maximising Super Contributions – Beware

Super contributions

The super contribution rules changed from July 2007

If you’re planning on maximising your super contributions, it pays to be vigilant when managing and implementing your strategy. There can be a nasty sting in the tail if you’re not careful.

Prior to the introduction of “Simple Super” there was a limit on the amount of pre-tax contributions you could make to super. But after-tax contributions were unlimited.

The “Simple Super” changes not only put a limit on after-tax contributions. They also changed the nature of pre-tax contributions.
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Ownership of family wealth

Which structure is best?
Family wealthFor our clients, there are predominantly four ways they hold their personal wealth. They are:

  1. Directly, either as an individual or jointly;
  2. In a private investment company;
  3. Through their family trust; and / or
  4. Via a self managed or public superannuation fund.

Which structure is best? It depends. But given our emphasis on focusing on the things you can control, the structure choice is one that needs serious consideration. There are a number of often competing factors to take into account, with taxation, asset protection and succession / estate planning usually most prominent. This article considers some of the issues.
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Mortgage or Super?

Mortgage or Super
Are you better off reducing your mortgage or contributing to super?

A lot of people ask this question. Unfortunately, as with many wealth management decisions there is no straight forward answer. The appropriate choice depends on a number of issues, some of which we address in this article.

The obvious starting point is to look at the numbers. Assume you have 15 years until you can access your superannuation benefits free of tax. You have a mortgage that is costing you 7.0% a year (after tax) and a small amount of super. Over the next 15 years, you expect to have at least $13,375[1] a year of surplus cash flow.
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Why have a Self Managed Super Fund?

Not for higher investment returns …Self managed super fund

There has been an above trend increase in the number of self managed super funds (“SMSF”) set up recently. Such spurts usually occur when investment returns have been poor. The expectation appears to be that better returns will be achieved with a self managed fund.

However, there is no clear link between investment performance and super fund structure i.e. self managed, industry, corporate or retail public offer. While industry fund advertisements suggest otherwise, their claims relate to the relatively higher costs of the alternatives. Before costs and taxes, no structure has any inherent investment performance advantage.

Five potential SMSF benefits …

But a SMSF offers at least five potential benefits over other super structures:
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