Changes to the SMSF Environment from the Budget

If you’re in finance, you love tax friendly environments for investment purposes. And perhaps the friendliest of them all is the superannuation environment.

While most of us pay 10-15% tax on any earnings within the super environment, there are times where you actually pay NO TAX o any earnings… making this environment our best friend in Australia!

As a little bit of background, there are 3 main structures you can use to hold your super:

  1. Industry Super Funds – These bundle you into different investment classes with a whole lot of other investors. While Admin fees are low, they typically have higher investment fees which can impact your balance when you have a higher super balance.
  2. Retail Funds – These monies can be controlled by you or by an adviser. You have the ability to invest your super in shares and similar asset classes as if it were in your own name.
  3. SMSF – This is the most nimble structure in the Super space. In an SMSF you have the ability to bundle multiple peoples super monies together to go into more sophisticated investments. You can start to invest in things like Property, Wines and smaller companies that you don’t play a direct role in. As the balance get’s bigger, the costs to run the SMSF generally gets smaller.

In the recent budget, the government announced that they would like to let Self Managed Super Funds have 6 members, instead of only 4. This means that you can now pull 6 different people together in order build up a pretty big nest egg.

When would you use this? Well think about when you’ve identified a property that you know is a good site but you don’t have enough capital outside of super to purchase it. The lending rules through super are a little more complex but to be safe, require you to have up to 50% of capital and will allow you to borrow the rest. Now, if you and 5 other people all have $100,000 in super, you can combine it all together, borrow money and buy a property worth upwards of $1.2m that is used for investment purposes.

These kinds of strategies can vastly improve your investment profile, but carry a whole lot more risks, simply from an operational an structural perspective, so we encourage anyone to get financial advice prior to considering any strategy to do with your super.

In conclusion, we would welcome the changes to the environment and know we will be able to use it to benefit many of our clients.