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Self managed super funds (SMSFs) have a number of benefits for farmers including control, flexibility and concessional tax treatment, but they’re not for everyone. Bill Adams, NAB’s National Manager of Agribusiness Wealth, discusses the pros and cons of SMSFs.
Farmers have traditionally relied on income from the farm to provide for their retirement, but things are changing. These days, many are choosing the benefits of superannuation and, increasingly, they’re considering managing the fund themselves.
“Self managed super funds (SMSFs) are the fastest-growing funds in the agricultural sector and inAustraliaas a whole,” says Bill Adams, National Manager of Agribusiness Wealth at NAB. “Overall, *almost 41,000 SMSFs were opened during the last financial year alone, bringing the total to more than 478,000.”
In the right hands, SMSFs can provide greater flexibility and control. “You’re in control of your asset allocation, how much you want in each asset class and, if you choose to include shares, you can decide exactly which ones you want to buy,”Adamscontinues. “When you get to retirement age and your SMSF starts paying an income stream, it can be easy to liquidate your assets and you don’t have to pay capital gains tax. A SMSF also provides protection from creditors if you should become bankrupt.”
Depending on the size of the fund there may be no management fees associated with having a SMSF so, while audits, tax returns and financial advice will attract some costs, it could be a lot cheaper than being in a retail fund. And one benefit unique to SMSFs is the option of borrowing from the fund to buy broadacre land or other property assets
“If you wanted to buy land costing $500,000 and had $300,000 in your SMSF you could use that as a deposit and borrow the rest from the bank,”Adamsexplains. “You could then lease that asset to the farm and pay rent to the super fund to repay the debt. But you have to bear in mind that these kinds of assets are not liquid. If you needed to break up the fund for any reason – for instance, following a divorce – you can’t simply liquidate them overnight as you could with shares. Land or property has to be sold before it can be divided.”
Not for everyone
However attractive the benefits, a SMSF is not for everyone.
“The name says it all,” saysAdams. “You have to be able to manage the fund yourself and take responsibility for compliance, such as making sure the fund is audited every year by an external auditor and lodging the annual tax return on time. You must have a documented investment strategy. And you must keep up with all of the legislative changes – not being aware of a change is no excuse for failing to comply. You’re answering to the Australian Tax Office (ATO) and, if you mess something up, you could end up with heavy fines.”
If you’re time poor and already struggling to get financial information out on time, you probably shouldn’t consider a SMSF. On the other hand, if you’re organised, have enough time and have some understanding of the economy and financial markets, a SMSF might be an effective option. The ATO website has a raft of good advice and information to give you a feel for what would be involved. You may then want to talk to a financial planner, registered tax agent or an accountant licensed to give professional advice. If you decide to go ahead, this is the person who will set up your fund and help with compliance.
“You just have to remember that however good the advice you receive, you are the one with final responsibility for making sure that every ‘i’ is dotted and every ‘t’ is crossed,” says Adams.
Find out more about SMSFs:
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