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Self Managed Super Fund (SMSF) Article
The Pros & Cons of Using Mum & Dad's Super

By Tony Negline.

This article may be out of date.

21st June 2007

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It certainly doesn’t take too long before the more savvy financial planners work out how legislative arbitrage can provide benefits for a client.

The truth of this statement is shown in how some people are reacting to the imminent super changes.  Some investors who are yet to retire want to give their money to a close relative, typically a parent.  Other investors are even asking their retired friends or associates for a hand.

Their purpose is relatively simple – they want to get hold of four potential benefits.

Firstly the amount you can concessionally invest into superannuation is now quite restrictive.  For example, from July 2007 only $150,000 can be put into super as an undeducted contributions each financial year.  Contributions for someone else gives you more money in super.  Secondly, retirees can keep assets in super for as long as they like.  If those assets are simply accumulating away then the tax rate on those assets is 15%.  This super fund tax-rate may be less than that which applies for investments held personally by an investor.  Furthermore, as Reasonable Benefit Limits will soon be abolished retirees can have as much assets in super as they want without any tax penalty.  Finally if access to these funds is required then the retiree can withdraw the funds tax-free assuming they are over 60.

Now for some people this will already seem like a great idea.  As always however there is more to these strategies than meets the eye.  There are many issues that need to be considered including:

Finally how will the government or its department react to this strategy?  This is yet to be seen however it can be assumed that they will not think too highly of this strategy.  Don’t be surprised if there is some governmental regulatory change or the tax office issues a tax ruling banning this type of arrangement.

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This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.

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