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Strategies must have younger trustee appeal

SMSF advisers must tailor strategies for all demographics to demonstrate the real appeal this retirement savings structure has for all superannuants, a sector expert has said.

Speaking at the launch of his latest book, The Guru’s Guide to Self-Managed Super Funds, in Sydney last week, I Love SMSF director Grant Abbott noted it is the job of specialist advisers to demonstrate the appeal of running an SMSF to younger clients.

Abbott pointed out a strategy that included investing in start-up companies could be a way to do this, with the premise being the ability to alleviate some of the contributions tax burden.

“So $25,000 goes into the fund and it is all invested into a start-up company and any income generated you pay tax on it at 15 per cent. But when investing in a start-up, you get a 20 per cent tax offset, which means there is no contributions tax on the money that is allocated to that investment,” he said.

“In fact, I end up with a 5 per cent extra offset, but unlike the franking credits, I carry it forward and can’t get a refund for it so I use it or lose it.”

He added the investment in a start-up had the further benefit of being capital gains tax-free if the SMSF member sells the stake within a 10-year period.

“This is not a strategy for my mum, it’s not a strategy necessarily for me, it’s for the youngsters. But it’s our job to demonstrate to the youngsters that an SMSF can work for them as well,” he noted.

Abbott emphasised the fact advisers needed to formulate SMSF strategies that resonated with a younger demographic as there were so few developments appealing to them – with the only significant one in recent times being the ability to use limited recourse borrowing arrangements.

“Borrowing to buy property is okay, but it is so hard now inside a self-managed super fund.”

However, Abbott did point out advisers recommending a strategy involving allocations to start-up businesses still had to take into account the principle of diversification.

“You’ve got to think carefully. You can’t put all of your money into one start-up. You’d put the contributions across a basket of different ventures,” he said.

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