In every Self Managed Super Fund there are 2 sides. An Accumulation side and a Pension side.
Using Harvee’s plane analogy from the beginning, the accumulation side or phase of an SMSF is when the fund is actively growing. The same as when that plane is climbing to new heights. You can’t touch any of that money while it’s in accumulation and that accumulation side has a set tax rate of 15% on what it earns.
So step 1 in controlling taxation is saving tax on contributions.
For example, I contributed $30,000 this year into my Family Super Fund – it’s called the Keshi Super Fund, named after a family dog I used to walk.
If I chose not to dump the $30K into super, I would have paid tax on that $30,000 at my highest marginal tax rate of 49%.
So by putting $30,000 towards my goal of becoming a Self Made Success, I saved $10,200 tax because as I’m in accumulation, I paid at only 15% instead of 49% – my plane is ascending!
Now fast forward 33 years and my wealth plane has been ascending higher and higher, it’s 2049 and I hit what is called preservation age, which means the government allows me to start accessing my super.
The plane begins its descent towards landing at retirement, so I am allowed to bring some of my assets in the SMSF over to the Pension side.
Any idea what the tax rate is on the Pension Side?
Zero percent. Booyah!
So that $30,000 I contributed last year, not only did I save $10,200 on the contribution, but so too did the other 3 members in my Family Super Fund.
With the $120,000 now in the fund, from 4 members contributing $30,000, we used that as a deposit to buy a $500,000 Commercial Property.
If we held on to the property for 34 years, and let’s say it doubled in value over that time and it’s worth $1,000,000.
I can sell the property when the SMSF is in pension phase and pay ZERO tax on that $500,000 capital gain.
WOW, WOW, WOW.
Just to give you some context, If made the exact same property deal but brought it in my own name, outside of super, I would have had to pay $122,500 tax (based on my top marginal tax rate of 49%)
So that’s how the Accumulation side and Pension side of an SMSF work – 15% in accumulation 0% in Pension.
But that’s not all …
What if I told you we could use negative gearing inside of a Super Fund to turn that 15% tax rate in the accumulation phase, down to ZERO?
That is legit possible.
There’s thousands of us SMSF Millionaires who implement this strategy every day.
Week 3 of the Become a SMSF Millionaire, 12 week course the lesson is called “The SMSF Millionaire’s guide to paying Less, Little and even NO tax in your SMSF”. It’s very hard to get ahead if 50c of every dollar you earn is going to the Tax Man.
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