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Self Managed Super Fund (SMSF) Article
Family Trusts vs SMSFs

By Tony Negline.

This article may be out of date.

10th February 2007

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How does super stacks up against other investment structures.

The truth is that there are lots of ways to hold assets.  Some examples are – personally, in partnership with relatives or friends, discretionary trusts, hybrid trusts, unit trusts and companies.

This article will compare holding an asset in a discretionary trust and a Self Managed Superannuation Fund.  A trust will be a discretionary when the trustee has complete discretion as to who will receive income and capital distributions.  Most family trusts are discretionary trusts.

There are many aspects to look at when comparing these two structures:

A distribution from a family trust will hold its character.  This means that a trustee could give one beneficiary franked dividends, another capital gains and a third property income.  Also the 50% CGT discount is available from assets held by the trust for more than 12 months.  (In reality the trustee claims the CGT discount and distributes pre-tax gains to the beneficiary who then claims the discount on their personal tax return.  This enables the individual to offset capital losses that may have arisen from the disposal of other assets.)

SMSFs do not have this flexibility if a fund member is alive when a benefit is paid.  The benefit must be paid to the member (or at the very least, if a trust deed permits, must be paid according to the specific directions of the member).  If SMSF member has died then the trustee may have flexibility as to who the benefit is paid.

However under the government’s proposed rules super funds will have considerable flexibility as to when and how a benefit can be paid.  Moreover any benefit a SMSF pays out after a member turns 60 will be tax-free.

As can be seen there are many aspects that need to be taken into account when working out which type of trust will suit a particular circumstance.  Often there is no right or wrong answer.  Often it’s a matter of weighing up all the pros and cons and making an educated decision.  Tax is only one issue to consider.

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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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