Self-managed super funds (SMSF’s) continue to grow in popularity with 30,000 new funds being established each year. Today, Australia boasts over 600,000 funds holding $700 billion of investments. Over 30% of the assets are invested in shares, with another 16% in property.
Although SMSFs can borrow to purchase assets, relatively few funds actually do so. The total borrowings in SMSFs currently stands at $31 billion (which is only 4.4% of total assets).
The key reasons for the continued growth in SMSFs are:
- Tax savings – 0% on the first $1.6 million of a member’s super balance in pension phase, 10% on any capital gains where the asset was owned for more than 12 months and 15% on any other taxable income.
- Can combine the super fund balances of up to four members to make larger investments than a single member could finance on their own (like a farm, commercial property, residential property, etc).
- A family’s super contributions are consolidated and kept together (so no multiple super accounts or lost super!).
- Can purchase the business premises or farm (and rent it back to the operating business for arms-length rental income).
- Can use non-recourse borrowings to finance the acquisition of larger investments.