SMSF Frequently Asked Questions (SMSF4U FAQ)
Griffin Accountants Pty Ltd specialises in Self Managed Super Funds (SMSFs) from setup, administration including tax effective strategies to maximise your retirement benefits.
Theresa Griffin is a Chartered Accountant (CA) as well as a Self Managed Super Fund Specialist Advisor (SMSF Specialist AdvisorTM) accredited by Self Managed Super Fund Professionals' Association of Australia (SPAA). Theresa Griffin is currently the only SMSF Specialist AdvisorTM in the Roseville / Lindfield / Killara / Gordon district. Kevin Griffin is a Certified Practising Accountant (CPA) and Fellow of the Taxation Institute of Australia (FTIA).
The following are some frequently asked questions in relation to Self Managed Super Funds (SMSF):
1. What is a Self Managed Superannuation Fund (SMSF)?
A Self Managed Super Fund (SMSF) is governed by the rules of a Trust Deed that complies with the Superannuation Supervisory Act (SIS Act) 1993. The Trustees of the super fund are responsible for ensuring the super fund is run according to the Trust Deed. A Self Managed Super Fund (SMSF) cannot have more than 4 members. Each members needs to be either an individual trustee or a director of a company acting as a trustee.
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2. What are the advantages of having your own Self Managed Super Fund (SMSF)?
Having your own SMSF allows you to be in control of the investment decisions:
Retail super funds performed worse than cash. This is very poor as anyone can invest in cash (meaning interest bearing bank accounts, term deposits etc).
The results were as follows:
Public Sector funds 6.30%>Corporate funds 5.84%>Industry funds 5.35%>Cash 4.2% >Retail funds 3.66%
So where do Self Managed Super Funds (SMSF) sit in the above. The answer depends on where you as trustees and members invested your super funds.
What contributed to the different average performance is summarised in the following table:
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8. What are the costs of a Self Managed Super Fund?
There are set up costs which varying from $620 for a Trust Deed with Individual trustees to $1,390 for Trust Deed with a company as trustee.
Ongoing costs are as following:
Accounting fees $500 to $2,500
Audit fees $440 to $605
ATO Supervisory $180
Total ongoing fees $1,120 to $3,285 pa.
If your super balance is $300,000, this means your ongoing cost as a percentage of your fund balance is from 0.4% to 1.1%. If your super fund was invested in cash earning 6% this means after allowing for the ongoing costs the performance of your super fund would be 4.91% to 5.63%. This is above the Retail fund performance above. It should be noted we do not recommend holding all your funds in cash and this example is illustrative in that the average cash interest for the above 14 years was not 6%.
The above is a broad range.
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9. What makes a Self Managed Super Fund cheaper to run?
The following types of investments will make the running of a SMSF cheaper:
Super funds can either be in Contributions Phase or Pension Phase.
In contribution phase, super funds are receiving contributions from their members.
In Pension Phase, no more contributions are possible.
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11. How is income from a super fund taxed in an individual’s hand if they are over 60 and meet a condition of release? (eg. They have retired)
This individual pays no income tax on pension or lump sums taken out of super fund in Pension Phase.
To be tax effective, by retirement, the aim is to have all of your income earning assets/funds inside super. That way, you are not paying any tax on any of the earnings on your assets/funds.
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12. What is a concessional super contribution?
A concessional super contribution is a contribution into super for which a tax deduction has been claimed.
The most common is an employer compulsory 9% super contribution or a self employed person making a contribution for which they are claiming a tax deduction.
Under 50, the concessional cap is $25,000 pa.
50 and over, the concessional cap is $50,000 pa. (Legislation is pending to reduce this to $25,000pa if you have a super balance over $500,000).
There are other conditions once you are aged 65 or more.
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13. How are concessional super contributions taxed inside super?
A concessional contribution is taxed at 15%.
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14. What is a non-concessional super contribution?
A non-concessional super contribution is a contribution into super for which NO tax deduction has been claimed.
An example is where you transfer $150,000 that was in your own name into super without claiming a tax deduction. Outside of super you had $150,000 earning interest in a bank at 6% that would be taxed at whatever your personal marginal rate is. Inside of super that same $150,000 could be earning interest at 6%, but paying no tax in Pension Phase.
Under 65, the non-concessional cap is $150,000 pa or $450,000 to cover a 3-year period.
65 and over, the non-concessional cap is $150,000 pa and is only available if you meet the work test.
There are other conditions once you are aged 65 or more.
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15. How are non-concessional super contributions taxed inside super?
No tax is paid on a non-concessional contribution into super.
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16. What does Salary sacrifice into super mean?
Salary sacrificing some of your salary into super means you are converting some of the gross salary you would normally earn into a concessional super contribution. An example demonstrating the benefit of salary sacrificing $10,000 into super is as follows:
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17. What Tax Effective Strategies are available?
There are many strategies available depending on your circumstances:
Transferring listed shares in your own name into super without increasing your personal tax liability.
Transferring funds that would otherwise be taxed at your own personal marginal tax rate into a tax free environment
Utlising Transition to Retirement to tax effectively maximise your super balance for retirement
Borrowing to buy residential or commercial property inside of super.
If you would like to discuss your options please contact Kevin Griffin CPA FTIA or Theresa Griffin CA SMSF Specialist AdvisorTM.
Theresa Griffin is currently the only SMSF Specialist AdvisorTM in the Roseville, Lindfield, Killara, Gordon district.
www.griffinaccountants.com.au
Ph: 02 9416 9973
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Griffin Accountants Pty Ltd specialises in Self Managed Super Funds (SMSFs) from setup, administration including tax effective strategies to maximise your retirement benefits.
Theresa Griffin is a Chartered Accountant (CA) as well as a Self Managed Super Fund Specialist Advisor (SMSF Specialist AdvisorTM) accredited by Self Managed Super Fund Professionals' Association of Australia (SPAA). Theresa Griffin is currently the only SMSF Specialist AdvisorTM in the Roseville / Lindfield / Killara / Gordon district. Kevin Griffin is a Certified Practising Accountant (CPA) and Fellow of the Taxation Institute of Australia (FTIA).
The following are some frequently asked questions in relation to Self Managed Super Funds (SMSF):
1. What is a Self Managed Superannuation Fund (SMSF)?
A Self Managed Super Fund (SMSF) is governed by the rules of a Trust Deed that complies with the Superannuation Supervisory Act (SIS Act) 1993. The Trustees of the super fund are responsible for ensuring the super fund is run according to the Trust Deed. A Self Managed Super Fund (SMSF) cannot have more than 4 members. Each members needs to be either an individual trustee or a director of a company acting as a trustee.
Back to top
2. What are the advantages of having your own Self Managed Super Fund (SMSF)?
Having your own SMSF allows you to be in control of the investment decisions:
- What assets to invest in (shares, term deposits, managed funds, direct property etc)
- How to manage the costs with greater certainty
- To borrow to buy property
- To do in-specie transfer of listed shares or business real property from yourself to a SMSF
- Increased flexibility in implementing tax effective strategies
3. Why is super so important?
The future intention of the government is for more people to provide for their own retirement.
The government provides special tax concessions for money inside the environment of superannuation.
There are 2 problems relying on the Age Pension:
- It is not much to live on. The Aged Pension is ~$18,000 pa or 25% of Average weekly earnings,
- Aging population will put more pressures on Government’s ability to maintain the Aged Pension. Approaches to deal with so far are increasing the retirement age or increase taxes.
4. What is super?
Super is a long term savings plan for which the government gives special tax concessions that cannot be achieve outside of super.
For example, for someone on the top marginal bracket, they are being taxed at 46.5% for amounts above $180,000. For every $100,000 above this threshold they are taking as personal income they are left with only $53,500 to invest. However, for every $100,000 above this threshold they put into super they have $85,000 to invest. If is very difficult for $53,500 balance outside of super to ever catch up to $85,000 balance inside of super. It should be noted there are caps in terms of how much super can be contributed into super each year.
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5. What are the disadvantages of super?
You cannot access the funds inside super until you retire or meet another condition of release (eg. Total Permanent Disability). But you cannot beat it as a long term investment vehicle.
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6. Why are some people negative about super?
Depending on what the super fund has invested in, the balance of the fund may go down every so often.
This is not a problem with super per se; it was the nature of the asset that was invested in. Investing in the same asset inside of super or outside of super would have brought about a similar result ignoring the affects of taxation.
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7. What are the different types of Super Funds?
Accumulation funds are the most common. Your final balance will be determined by your contributions, investment earnings, minus tax and various fees over the life of your member balance.
A less common super fund is a Defined Benefit fund that is largely restricted to Government super funds or some large companies. Your final balance is based on a formula usually involving final salary for last 3 years, years of service etc.
In addition you have the following types of super funds:
- Public Sector
- Corporate funds
- Industry funds
- Retail funds
- Small APRA funds
- Self Managed Super Funds (SMSF or DIY SMSF)
Retail super funds performed worse than cash. This is very poor as anyone can invest in cash (meaning interest bearing bank accounts, term deposits etc).
The results were as follows:
Public Sector funds 6.30%>Corporate funds 5.84%>Industry funds 5.35%>Cash 4.2% >Retail funds 3.66%
So where do Self Managed Super Funds (SMSF) sit in the above. The answer depends on where you as trustees and members invested your super funds.
What contributed to the different average performance is summarised in the following table:
| Public Sector Funds | Corporate Funds | Industry Funds | Retail Funds | |
| Average performance from above |
6.30% | 5.84% | 5.35% | 3.66% |
| What contributes to the overall performance of the fund |
Government pay fees | Corporates often pay fees of managing super fund on behalf of their employees; Once you leave the company the fees of your super fund may increase dramatically | Advertising fees cut into their performance |
Commissions to Financial Planners, Advisers, Management and Investment fees; Check the detailed notes to see how Management and investment fees are often taken out before the distribution by selling some of your units in the super fund or reducing the value per unit. |
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8. What are the costs of a Self Managed Super Fund?
There are set up costs which varying from $620 for a Trust Deed with Individual trustees to $1,390 for Trust Deed with a company as trustee.
Ongoing costs are as following:
Accounting fees $500 to $2,500
Audit fees $440 to $605
ATO Supervisory $180
Total ongoing fees $1,120 to $3,285 pa.
If your super balance is $300,000, this means your ongoing cost as a percentage of your fund balance is from 0.4% to 1.1%. If your super fund was invested in cash earning 6% this means after allowing for the ongoing costs the performance of your super fund would be 4.91% to 5.63%. This is above the Retail fund performance above. It should be noted we do not recommend holding all your funds in cash and this example is illustrative in that the average cash interest for the above 14 years was not 6%.
The above is a broad range.
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9. What makes a Self Managed Super Fund cheaper to run?
The following types of investments will make the running of a SMSF cheaper:
- Hold funds in cash (bank deposits, term deposits etc)
- Buy only listed shares, and not unlisted shares
- Buy and hold shares and receive dividends from them rather than lots of transaction of buying and selling shares
- Not buying artworks
- Maintaining good records
The ongoing costs of a self managed super fund following the above criteria and with $300,000 balance would be around $2,000 pa. This translates to an ongoing cost of 0.67% of the super balance.
The following types of investing will make the running of a SMSF more expensive:
- Buying unlisted shares
- Lots of transactions in buying and selling shares
- Buying artwork or other assets that the auditor may require regular market valuation for
- Breaching the SIS Act 1993 in anyway; this could make your SMSF non-complying and have serious tax consequences
- Poor or incomplete records
Super funds can either be in Contributions Phase or Pension Phase.
In contribution phase, super funds are receiving contributions from their members.
In Pension Phase, no more contributions are possible.
| Income Tax Rates | Contribution Phase | Pension Phase |
| Employer Contributions or other Concessional Contributions |
15% | N/A |
| Revenue Income (Interest, Rent etc) | 15% | Nil |
| Revenue Income (Fully Franked Dividends) |
15% Refund (taxed 15% inside super less 30% credit from company) |
30% Refund (taxed 0% inside super less 30% credit from company). That is, all of the franking credits are refunded to the super fund |
| Capital Gains (from disposal of shares, property etc) |
15% or 10% if asset held more than 12 months |
Nil |
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11. How is income from a super fund taxed in an individual’s hand if they are over 60 and meet a condition of release? (eg. They have retired)
This individual pays no income tax on pension or lump sums taken out of super fund in Pension Phase.
To be tax effective, by retirement, the aim is to have all of your income earning assets/funds inside super. That way, you are not paying any tax on any of the earnings on your assets/funds.
Back to top
12. What is a concessional super contribution?
A concessional super contribution is a contribution into super for which a tax deduction has been claimed.
The most common is an employer compulsory 9% super contribution or a self employed person making a contribution for which they are claiming a tax deduction.
Under 50, the concessional cap is $25,000 pa.
50 and over, the concessional cap is $50,000 pa. (Legislation is pending to reduce this to $25,000pa if you have a super balance over $500,000).
There are other conditions once you are aged 65 or more.
Back to top
13. How are concessional super contributions taxed inside super?
A concessional contribution is taxed at 15%.
Back to top
14. What is a non-concessional super contribution?
A non-concessional super contribution is a contribution into super for which NO tax deduction has been claimed.
An example is where you transfer $150,000 that was in your own name into super without claiming a tax deduction. Outside of super you had $150,000 earning interest in a bank at 6% that would be taxed at whatever your personal marginal rate is. Inside of super that same $150,000 could be earning interest at 6%, but paying no tax in Pension Phase.
Under 65, the non-concessional cap is $150,000 pa or $450,000 to cover a 3-year period.
65 and over, the non-concessional cap is $150,000 pa and is only available if you meet the work test.
There are other conditions once you are aged 65 or more.
Back to top
15. How are non-concessional super contributions taxed inside super?
No tax is paid on a non-concessional contribution into super.
Back to top
16. What does Salary sacrifice into super mean?
Salary sacrificing some of your salary into super means you are converting some of the gross salary you would normally earn into a concessional super contribution. An example demonstrating the benefit of salary sacrificing $10,000 into super is as follows:
| No Salary Sacrifice | If Salary Sacrifice into super | |
| Gross Salary | $120,000 | $110,000 |
| Personal Tax | $34,150 | $30,300 |
| Extra Personal Tax Paid | $3,850 | Nil |
| Extra Super contribution | Nil | $10,000 |
| Extra Super tax (paid by super fund) |
N/A | $1,500 |
| Benefit of Salary Sacrificing $10,000 into super (This is the extra saving you have, but it is inside super) |
N/A | $2,350 |
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17. What Tax Effective Strategies are available?
There are many strategies available depending on your circumstances:
Transferring listed shares in your own name into super without increasing your personal tax liability.
Transferring funds that would otherwise be taxed at your own personal marginal tax rate into a tax free environment
Utlising Transition to Retirement to tax effectively maximise your super balance for retirement
Borrowing to buy residential or commercial property inside of super.
If you would like to discuss your options please contact Kevin Griffin CPA FTIA or Theresa Griffin CA SMSF Specialist AdvisorTM.
Theresa Griffin is currently the only SMSF Specialist AdvisorTM in the Roseville, Lindfield, Killara, Gordon district.
www.griffinaccountants.com.au
Ph: 02 9416 9973
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Business address:
10 Howard Street,
LINDFIELD NSW 2070
Phone:
02 9416 9973 or 0419 998 655
Email:
advice@griffinaccountants.com.au
Website:
www.griffinaccountants.com.au
10 Howard Street,
LINDFIELD NSW 2070
Phone:
02 9416 9973 or 0419 998 655
Email:
advice@griffinaccountants.com.au
Website:
www.griffinaccountants.com.au
Theresa Griffin is a Chartered Accountant (CA) as well as a Self Managed Super Fund Specialist Advisor (SMSF Specialist AdvisorTM) accredited by Self Managed Super Fund Professionals' Association of Australia (SPAA).
Theresa Griffin is currently the only SMSF Specialist AdvisorTM in the Lindfield / Killara district.
Kevin Griffin is a Certified Practising Accountant (CPA) and Fellow of the Tax Institute of Australia (FTIA).
Theresa Griffin is currently the only SMSF Specialist AdvisorTM in the Lindfield / Killara district.
Kevin Griffin is a Certified Practising Accountant (CPA) and Fellow of the Tax Institute of Australia (FTIA).