A self-managed super fund (SMSF) is a trust structure that can be used to manage retirement savings on behalf of its members. SMSFs are established for the sole purpose of providing financial benefits to its beneficiaries in retirement, with the benefits passing to the deceased’s beneficiaries on death.
The ATO is the key regulator of SMSFs, and helps taxpayers to understand their duties and responsibilities as trustees under the law, assists with compliance of the obligations under the law, and protects the future benefits of fund members.
All super funds in Australia are required to comply with the SIS Act (Superannuation Industry [Supervision Act] 1993) which is the superannuation act and statutory bible.
SMSFs can pay three different rates of tax:
- 0% – When in 100% pension phase.
- 10% – On any capital gains where the asset was owned for more than 12 months.
- 15% – Other taxable income.
A major tax advantage of owning shares in a SMSF is that any dividend income received on fully franked shares will have franking credits attached to the dividend allowing the SMSF a credit for the 30% tax paid by the company. As the standard super fund tax rate is 15%, the excess franking credits will be available to reduce the tax payable on other super fund income, or be refunded.
In addition, even where the SMSF is solely in pension phase (i.e. paying 0% tax), it can still claim a refund of franking credits on any franked dividend income it received.