The advantages of a SMSF: Greville Pabst

The advantages of a SMSF: Greville Pabst
Greville PabstDecember 17, 2020

A growing number of investors are turning to self-managed superannuation funds to take control of their future nest eggs.

According to the Australian Taxation Office, self-managed super funds (SMSFs) account for almost $439 million of the $1.3 trillion in Australian super funds, with more than 478,000 funds in operation at June 2012, and the number of funds growing at more than 6 per cent per annum.

The growing shift towards SMSFs follows a loss of confidence in the performance of Australian superannuation funds, which in recent years have been considered among the worst performing in the advanced world.

With volatility in the equity markets, many Australian investors are turning to bricks and mortar due to its relative stability when compared with other asset classes. In fact, of the 19 superannuation asset categories, residential property ranks in the top seven and is an increasingly popular investment option for those aged 45 to 64 and with $200,000 or more in their SMSF.

SMSFs are most popular in New South Wales and Victoria, with each state accounting for approximately 30 per cent of all super funds in Australia. These states are followed by Queensland in a distant third at approximately 17 per cent and Western Australia at 10.5%.

Recently revised super rules mean it’s even easier for Australians to invest in property using their superannuation. SMSFs provide improved taxation rates for voluntary contributions, asset protection in the instance that the fund holder declares bankruptcy, and no capital gains tax and/or tax free income once the trustee has reached the pension phase.

This means an eligible SMSF may purchase a property today for $400,000, hold it for several years, during which time it grows in value, and sell it after the member reaches 60 years of age, without paying capital gains tax. A direct investment of the same kind would typically be subject to a marginal tax rate ranging from 15 to 45 per cent.

While SMSF can be an effective structure to build financial wealth for your retirement the process is not without risks. Not only must the fund be suitably structured but it’s also critical to select assets that will provide positive long-term financial outcomes. The fact is, not all properties perform the same, which isn’t always obvious to investors in the short-term.

These days property investment is complex as it offers a range of choices including off the plan, high rise CBD apartments, student accommodation, serviced apartments and foreign property - all of which are subject to individual risks and benefits.

To maximise the benefits of investing in property with super ensure you select a property with the right profile for strong capital growth. Properties of this kind are typically underpinned by location, scarcity in type and number of similar properties and have a track record of stable performance.

If in doubt about establishing a SMSF or selecting an investment property consult an independent professional advisor and find out how they can help you take control of your financial future.

Greville Pabst is CEO of the WBP Property Group.

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