Self Managed Superannuation Fund Planning

Self Managed Superannuation Funds (SMSFs) can be utilised as an excellent vessel in which the minimisation of taxes can be planned.

Consider the following as examples of how a Self Managed Superannuation Fund can be utilised as a tax planning structure:

1

At the age of 40 you come into a windfall of $400,000 and you want to invest this in a property for the future. You make non concessional contributions with your partner into an SMSF of the full $400,000 and buy a property for $350,000 leaving you enough cash left over to meet the stamp duty and legal costs to buy the property, plus giving you some funds for any other expenses of the fund.

  • The Property derives rent each year of $30,000 upon which you pay tax at 15% instead of a possible 30 to 45% if that rent was derived in your own name. This saves you about $4,500 every year.
  • In 10 years time the Property makes a capital gain of $100,000. By utilising the 1/3rd exemption, the Capital Gains tax on $100,000 is reduced to a rate of 10% or $10,000. This compares to the approximately 22.5% you would have paid personally or $22,500.
  • Over the life of the asset you have saved $57,500 in tax.

    2

    Let’s say you are now 60 years of age and have $600,000 in an SMSF.

    • You decide to start paying yourself a pension from the fund at the minimum amount of $24,000. Given your age the $24,000 is tax free to yourself.
    • The fund is actually earning income each year of $36,000 which is also Tax Free.
    • A couple of years down the track you sell an asset in the fund which the fund has owned for about 10 years, making a gain of $100,000. All of the gain is tax free to the fund.
    • So in the end the SMSF is growing in value and at a more rapid rate as it is not paying tax on any of its earnings or capital gains. This is even the case after it has been paying you a pension of $24,000 free of tax, which would equate to a salary as a gross of about $28,750.

    There are a number of other strategies that can be employed that will minimise tax by utilising an SMSF, however every strategy should be undertaken with your overall goals and circumstances in mind. We suggest that before you commence using an SMSF that you contact Bentleys to provide you with a referral to a quality financial advisor in this regard. Whilst it is important that the financial advice as to strategy is provided by a financial services provider, our team at Bentleys are available to assist you with the documentation, administration and accounting for your SMSF, so that it complies with the relevant laws.