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Super Fund

Superannuation is a very low risk tax structure where like a Trust you appoint a trustee (usually a super fund trustee) who looks after your wealth for your retirement purposes. In Australia we have DIY super funds, or self-managed super-funds, where the member manages their own superannuation. If you manage it properly it is a very good saving vehicle, but if you make mistakes, it can cost you a lot in penalties.

Self-managed super funds are taxed at a low 15% rate. However, you are not allowed to access the funds until retirement age, which in Australia is currently 65 years of age. If you use this money before you are 65 years old, the ATO will issue a tax penalty, and in some cases this can be at the tax rate of 46.5%.

The first step in setting up a DIY super fund involves passing a Sole Purpose Test. You need to prove that the self-managed super fund is only going to be used for retirement purposes. If you fail the test, you will not be able to receive the concessional tax rate of 15%. Some people have tried to use all of their super fund money to trade shares for short-term gain, but in doing so, the chances of passing the Sole Purpose Test is greatly diminished.

Self-managed superannuation funds are comparatively very expensive to set-up. Like a trust, it can cost up to $2,000. Also, each year you need to pay an auditor. As a rule of thumb, you鈥檒l need around $100,000 to justify setting up a self-managed super fund. This is because if you have less than $100,000, the income you earn will not be sufficient to cover expenses. There are also government levies, accounting fees, and in some cases, financial investor advisory fees.

Administration for superannuation funds is very, very complex. DIY super funds are governed by superannuation laws, which require a lot of paperwork and knowledge. Therefore, it may not be a good idea for average people to set-up on their own 鈥 it's simply very time consuming. For people that own businesses, this type of super fund can be very beneficial, as you can use the super fund money to buy your business premises, and then rent it back to the operating business.