Setting up a self-managed super fund (SMSF) comes with its range of benefits, yet many Australians are unaware just what a SMSF can offer investors.

Over the past decade, the number of new SMSFs established each year has steadily decreased. The reason is that many people consider SMSFs to be too complex and time-consuming to manage. What’s more is they don’t actually know of a strong-enough reason to go through the trouble of setting up an SMSF.

However, rest assured that there is a good reason to do so. In fact, there are multiple. 

1. You gain control of your investments

One of the main benefits of an SMSF is having access to many investment assets, coupled with a high degree of control.

With an SMSF, you can invest in; commercial and residential property, collectibles, term deposits and direct shares.

Business owners can benefit even more from an SMSF. They can buy a business property under their SMSF and lease it back to the business. In doing so, a business owner can regularly contribute to the SMSF via the rent and potentially free up business capital.

2. You can use an SMSF to invest in property

With an SMSF, you can invest in expensive assets that you may not otherwise be able to access. Of course, these include commercial and residential properties. You can also apply for a limited recourse loan to borrow money through your SMSF.

In most cases, the security for a limited recourse loan is 60-70%. But this doesn’t include expenses like legal or stamp duty costs.

If you decide to buy a property through your SMSF, remember that the rules prohibit you from living in it. This also applies to those who are related to any of the SMSF trustees.

Also, it’s not a good idea to buy a property for renovation purposes. You can use the funds that you borrow for maintenance but not for improvements. This also means that buying an empty lot or a development site for the purposes of building on it isn’t possible.

3. You can control and minimise your taxes

SMSFs allow you to manage your taxes more effectively. 

Currently, the tax rate on SMSF earnings is 15%. However, when you’re retired and you’re using the assets in your SMSF to generate your pension, you don’t have to worry about paying any tax on the income.

An SMSF can have up to four members and multiple pension accounts. If one or more members retires, you can reallocate the funds to gain a tax advantage. 

4. SMSFs offer asset protection

Investors and business owners need asset protection, and an SMSF is great at protecting all its members in the event of a bankruptcy or litigation.

This is because the creditors are likely to protect the benefits of your SMSF. If your business venture fails, you’ll end up with your SMSF balance because this would be your only asset. 

However, keep in mind that you can’t use your SMSF to revive a business venture. This is because it’s a retirement fund by purpose.

The asset protection comes when buying a property through an SMSF. Since you’re not buying under your personal name, your personal creditors or those who hold your personal liabilities can’t go after your SMSF properties.

5. You can minimise transaction costs

With an SMSF, you’ll go through two stages: accumulation and retirement. During the accumulation phase, you’ll be working and accumulating your funds. At a suitable time, you’d transition to the retirement phase and get your pension through your SMSF.

Now, most industrial and retail funds would require you to sell your assets at the end of the accumulation phase. After that, you can repurchase them when you’ve retired.

But not with an SMSF. Rather, you get to retain all your assets and start drawing income from your SMSF.

The act of selling and repurchasing a mutual fund comes with a number of costs. These may include the CGT and brokerage fees. But with an SMSF, you can forego these costs.

As you can see, there are perfectly good reasons to set up an SMSF. It can help you to gain control over your investment assets and provide a comfortable future retirement. Plus, you’ll be able to save money on more than one occasion.

If you decide to set up an SMSF, bear in mind that the regulations governing them are very exacting. You must have a good understanding of what you’re able to do with your fund and what’s not possible. Failing to comply can have grave consequences.

Still, the benefits of an SMSF can far outweigh these risks, especially since you can get external help in setting up and managing the fund.

Join me and co-Founder Lianna Pan as we take a deep dive into this and many other property investment strategies at our free online Masterclass. We will showcase all of our property market predictions as well as how to pay off your current mortgage in 10 years or less.

– Scott

Scott Kuru is one of Australia's leading property investment specialists and is Founder & CEO at Freedom Property Investors.

Scott Kuru is one of Australia’s leading property investment specialists and is Founder & CEO at Freedom Property Investors.

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