SELF MANAGED SUPER FUNDS
Super – your government-approved tax haven
Superannuation funds (called pension funds in other countries) can be thought of as a government-approved tax haven – and they are approved for good reasons. Put bluntly, the government does not want to pay for you when you are old – they want you to provide your own retirement income. The government might also realize it is actually fair and resonable to allow human beings to claim some depreciation towards an income relacement fund as we all get older.
With your own self-managed superannuation fund, you can take charge of your financial future.
Superannuation funds have the following features:
- a tax rate of 15% or less (zero if an annuity fund)
- contributions can be tax-deductible up to $25,000 per annum but note that tax-deductible contributions are taxed at 15%
- benefits are tax-free if you are over 60
- there is limited ability to invest in an owner-managed business
- there are preservation restrictions on access to capital
- there is some asset protection from creditors
- there are savage penalties on “excess” concession or non-concessional contributions
While the restrictions on contributions and the 15% tax rate mean that higher income earners with more to save than $25,000 and lower income earners on tax rates near 15% or less may each have reasons not to contribute to super, where it is possible, super should be used as the cornerstone of a safe retirement nest egg.
With a self-managed superannuation fund (commonly referred to as an SMSF), you have additional flexibility in dealing with issues such as payment of death benefits or having adjustable or variable pensions. For example, you may retire and draw on a large pension for some years, then get a windfall inheritance, put much of it into super and not need to draw so much on a pension for some years while the money put into your SMSF accumulates tax free as you draw down the rest of your inherited capital.