Tax Tip: Establish An SMSF

This tax tip is about establishing a SMSF, or self-managed super fund. I’m not going to give you advice whether you should do this from a personal perspective, but I’ll just outline some tax saving tips that you can actually do if you have a self-managed super fund.

A super fund is another option for holding your superannuation, and that’s the 9.5% currently, is the rate of any salaries paid to yourself. But if you’ve worked for another company, then you probably have got some sort of balance there.

An SMSF is an alternative to another company managing your super for you, so it gives you a little bit more control over how you invest your funds. But also, running an SMSF means you’re basically the administrator of your fund, and there’s a couple of things we can do, from even a super contribution if you run a business yourself. So I’ll give you an example…

There’s a rule where a super fund has 28 days to allocate a contribution to a member. One of the strategies we do is actually double someone’s contributions in a financial year. For example, let’s say a $50,000 contribution is the doubled amount – so we’ve got $25k for two financial years. The 50 grand goes from the business account, into the self-managed super funds account. And what we do from the self-managed super fund perspective, is we allocate $25,000 to that member in the current financial year it was received, and then we allocate the remaining 25 grand to the next financial year (we actually don’t allocate it because we’ve got 28 days to do that step). This only works with contributions made from, I think, the 3rd or 4th of June onwards in each financial year, because we need that 28 days or early July before we go and allocate to that member, and so we don’t go over their annual concessional contribution cap of $25,000.

So that’s how we can get the tax deduction, because super is tax deductible when it’s paid – and that might be to the business owner, or to the person as a concessional personal contribution. But the contribution cap gets used up when the fund allocates that money to the member. So again, we get the $50,000 deduction to the business or to the person in the current financial year when it’s paid, and then we allocate $25k for this financial year and $25k for the next. So that’s a really cool example of the flexibility that you might get from self-managed super fund. Apart from really being able to be onto it when it comes to accessing pensions, or even doing your estate planning (which is an example of a purpose that you might be able to use your super for) and because it’s to do with death or retirement, then you can use your superannuation funds to go and get your wills sorted, as an example – so that’s another pretty cool use of a self-managed super fund’s flexibility.

One of the biggest reasons why people set up a self-managed super fund is that flexibility of what they invest into. In particular, direct property is an investment type that you can’t actually do with one of those big, huge superannuation providers. You can’t go and buy the house down the road (so to speak), and rent that out with one of those big super funds, but you can do it under certain conditions and meeting certain requirements with self-managed super.

It’s pretty cool when it comes to flexibility, and they can help you out from a tax perspective. So definitely consider it. Again, this is not financial advice to go and set one up, but please consider if it might be a good fit for you. You can always go and get that financial advice and assistance of whether you should set one up.