This is a short slide show on the pros and cons of a Self Managed Super Fund (SMSF) in Australia

1. Pros and cons of self managed super funds

2. Agenda
 What is an SMSF?
 Who is involved in running an SMSF?
 Trustee requirements
 Advantages and disadvantages
 Investment management
 Case studies

3. What is a SMSF?
 Designed for people looking for greater control and choice over
their retirement savings
 Must have 4 or less members in the fund
 Suited to family members or close business associates
 One of the fastest growing sector in recent years - more than
406,000 funds with assets of more than $327 billion*
* Source: ATO – Statistical report March 2009

4. Who is involved in running a SMSF?
Trustees
Appointed to hold the assets of the SMSF and to Auditor Australian
ensure the SMSF is operated in accordance with Taxation
the trust deed
Office
Trust deed
Legal document setting out the
rules for operating the SMSF
Investment
Managers Fund
Administrator
Investment strategy
Document setting out how the SMSF’s
investments are made
Stockbroker
Members Actuary
Individuals for whom contributions
are made and for whom benefits will be paid

5. Trustee requirements for SMSFs
 “Self managed” means that all members are assumed to be fully
involved and in a position to look after their own interests
 All members must be trustees, and all trustees must be
members
 Where the trustee is a company, all members must be directors
of the trustee company
 You can also use a professional trustee (Small APRA fund) if
you do not wish to meet the trustee requirements

6. SMSF advantages
 More control over the management and investment of your
super
 Access to a broader range of investments (eg direct shares,
property, non-traditional assets)
 You can make ‘in specie’ transfers (eg listed securities,
managed funds, commercial property)
 Potential to reduce the amount of tax paid by investing in assets
paying franked dividends
 Ability to invest in instalment warrants

7. SMSF advantages - cont
 Minimise capital gains tax using a pension
 Ongoing and portable
 Estate planning
 Confidentiality

8. SMSF disadvantages
 Not cost-effective for smaller amounts of money
 Time involved in compliance related tasks and in managing
investments
 Responsibility of ensuring that the fund complies with the law
 No access to group life insurance

9. Investment strategy
 The trustees must prepare and implement an investment
strategy for the SMSF which considers:
 risk versus return
 diversification across a number of asset classes (for example,
shares, property, fixed deposit) in a long-term investment strategy
 the ability of the superannuation fund to pay benefits as they
become due and payable.
 The investment strategy must be reviewed and updated
regularly

10. Key administrative obligations
Have an investment strategy and review it regularly
Keep proper records
Keep superannuation assets separate
Don’t lend superannuation money to members or relatives
Don’t borrow money from the fund
Be aware of rules when buying assets from related parties
Don’t allow in house assets to exceed 5% of total assets
Buy and sell assets at true market value
Make sure contributions are allowable
From ‘Running a self-managed super fund’ issued by the ATO

11. Trustee’s obligations
 While service providers can be engaged to assist you to run your
SMSF (eg accountant, fund administrator, tax agent) ultimate
responsibility and accountability for running the fund in a prudent
manner lies with the trustees
 Trustees or directors of corporate trustees appointed will need to
sign a trustee declaration within in 21 days of becoming a
trustee or director
 Significant penalties for contravention of legislative requirement.
If an SMSF loses complying status, the fund may be taxed at
46.5% instead of the concessional rate of 15%

12. Case study 1 - Direct shares
Michelle (age 47) receives a salary of $75,000 pa. She owns a
portfolio of shares and managed funds valued at $260,000.
Michelle contributes the shares and managed funds to an SMSF.
This triggers capital gains tax (CGT) for Michelle on the growth in her
portfolio.
There is an upfront cost of transferring the shares to the SMSF but
future capital gains will accrue in a low tax environment.
There will be no tax on capital gains within the SMSF if the assets are
sold in pension phase.

13. Case study 2 - Selling assets in pension phase
Peter (57) has an SMSF. The main asset of the fund is a rental
property purchased several years ago for $340,000. Peter intends
to sell the property to pay for his retirement.
The capital gain on the property is $210,000, which would be
reduced by 1/3 discount for assets owned more than 12 months.
The tax payable would therefore be $21,000 (15% x 2/3 x
$210,000).
This is less tax than if Peter had owned the property personally due
to the higher tax rates on individuals (ie up to 46.5%, or up to
23.25% after 50% discount for assets held more than 12 months).

14. Case study 2 - Selling assets in pension phase
What if Peter had commenced a pension prior to selling the
property?
Superannuation funds paying a pension do not pay tax on income
or capital gains from assets funding the pension
Peter would have saved $21,000 in tax
The ability to manage CGT highlights the advantages of an SMSF,
particularly for assets which cannot be accessed from a retail super
fund, such as direct property

15. Case study 3 - Business real property
Geoff (55) and Helen (51) are partners in a successful restaurant.
They currently lease the business premises, however there is an
opportunity to purchase from the current owner.
Geoff has $300,000 and Helen has $350,000 in their SMSF.
Rather than take on additional debt, they use the SMSF to acquire
the property. The SMSF then leases the property to the business
on normal commercial terms.
The investment strategy for the SMSF reflects that the purchase of
the business premises is for retirement purposes and takes into
account the estimated rental income and capital growth.

16. Case study 3 - Business real property
There is greater certainty for Geoff and Helen as owners (via their
SMSF) as they do not need to be concerned with lease renewals.
Capital gains on the property will accrue in a low tax environment.
CGT will not be payable if pension commenced prior to selling
property.
Lease payments deductible to partnership (at up to 46.5%) but
taxable to the SMSF at only 15%.
The use of super as a low cost source of financing for business real
property is an important advantage of SMSF for business owners.

17. Conclusion
 An SMSF allows greater control and choice over how your super
is invested
 Potential tax benefits
 More cost effective as fund size increases
 Important to be aware of compliance obligations

18. Disclaimer
Important information
This presentation has been prepared by Charter Financial Planning (AFSL Number 234665) to
provide you with general information only. It is not intended to take the place of professional
advice and you should not take action on specific issues in reliance on this information. It is not
intended that it be relied on by recipients for the purpose of making investment and/or business
decisions. Before making an investment decision, you need to consider (with or without the
assistance of an adviser) whether this information is appropriate to your needs, objectives and
circumstances. You should obtain a copy of any relevant Product Disclosure Statement (PDS)
before making a decision to invest in any financial product. Copies of PDS can be obtained from
your adviser or by contacting us. Every effort has been made to ensure that the presentation is
accurate, however it is not intended to be a complete description of the matters described. Neither
Viridian Wealth Management Pty Ltd or Charter Financial Planning gives any warranty as to the
accuracy, reliability or completeness of information which is contained in this presentation. Except
insofar as any liability under statute cannot be excluded, Viridian Wealth Management Pty Ltd,
Charter Financial Planning, it's employees, and authorised representatives do not accept any
liability for any error or omission in this presentation or for any resulting loss or damage suffered
by the recipient or any other person. This information is provided for persons in Australia only is
not provided for the use of any person who is in any other country.

19. Questions
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