10 Smart Ways to Reduce Taxes on Your Self-Managed Super Fund

Managing your retirement savings with a Self-Managed Super Fund (SMSF) gives you lots of control and flexibility.

But, it also means you have to manage it well, especially when it comes to taxes.

Taxes in Australia can be tricky.

However, knowing a few important strategies can help you save money on your SMSF taxes. This way, you can grow your retirement savings even more.

In this post, I’ll share some simple and effective tips to reduce taxes on your SMSF.

Tax Tips To Reduce Taxes on Your Self-Managed Super Fund

Get Professional Help

Understanding SMSF tax strategies can be tough. Getting help from experts can make it easier.

Accountants, financial advisors, and tax specialists know a lot about SMSF taxes. They can give you tips that fit your needs. This advice can help you save more money.

SMSF taxation experts in Sydney say it’s important to check your SMSF plan often. Regular reviews help you stay on track and get the best tax benefits.

By seeking professional advice, you can make sure your SMSF is always working well for you.

Use the Lower Tax Rate

SMSFs get a lower tax rate of 15% on income. This rate is much lower than what most people pay.

To keep this low rate, your SMSF must follow the rules. Make sure to:

Meet yearly audit requirements.
File tax returns on time.
Follow investment rules.

If your SMSF doesn’t follow the rules, you might face penalties and higher taxes. Keeping everything in order helps you save money.

Maximize Your Concessional Contributions

Concessional contributions are payments made to your SMSF before tax. These include employer contributions and salary sacrifice contributions. They are taxed at only 15%, which is usually lower than what most people pay in taxes.

For the 2023-2024 financial year, you can contribute up to $27,500 in concessional contributions. Using this cap fully can help lower your taxable income. This means you keep more of your money and grow your SMSF faster.

To make the most of this benefit:

Check how much you’ve already contributed.
Plan your contributions to reach the cap.
Talk to your employer about salary sacrificing.

By maximizing your concessional contributions, you can save on taxes and boost your retirement savings.

Non-Concessional Contributions

Non-concessional contributions are payments made to your SMSF from your after-tax income. These contributions are not taxed within the SMSF.

For the 2023-2024 financial year, you can contribute up to $110,000 in non-concessional contributions each year. If you’re under 75, you can use the “bring-forward” rule. This lets you contribute up to $330,000 at once without breaking the cap.

Even though these contributions don’t lower your taxes right away, they still grow in the low-tax SMSF environment.

To make the most of non-concessional contributions:

Plan your contributions carefully.
Consider using the bring-forward rule for larger contributions.
Monitor your contributions to stay within the limits.

Adding non-concessional contributions to your SMSF helps your savings grow faster and prepares you for a better retirement.

Use the Segregated Asset Method

When your SMSF is in the pension phase, you can use the segregated asset method. This lets you choose specific assets to fund your retirement income. The best part is, investment earnings on these assets are tax-free.

To make the most of this method:

Select high-growth or high-income assets to segregate.
Plan carefully and keep good records.
Follow the Australian Taxation Office (ATO) rules to stay compliant.

Using the segregated asset method can help you save a lot on taxes and boost your retirement savings.

Investment Strategy and Capital Gains Tax (CGT) Management

A good investment strategy can help lower taxes on your SMSF. When you hold assets for more than 12 months, you get a one-third discount on capital gains tax (CGT). This reduces the CGT rate to 10%.

To make the most of this:

Plan to sell assets after holding them for over a year.
Time asset sales to get the discount.
Think about when to sell assets during both the accumulation and pension phases of your SMSF.

By managing your investments wisely and timing your sales, you can save a lot on taxes and grow your retirement savings even more.

Carry Forward Unused Concessional Contributions

Since the 2018-2019 financial year, SMSF members with less than $500,000 in total superannuation can carry forward unused concessional contributions for up to five years. This means you can make bigger contributions in years when you earn more, lowering your taxes.

To use this strategy:

Track your unused concessional contributions.
Plan larger contributions in high-income years.
Use this flexibility to manage changing income levels.

By carrying forward unused contributions, you can reduce your tax burden and boost your retirement savings.

Utilize Franking Credits

Investing in Australian shares that pay fully franked dividends can benefit your SMSF. Franking credits from these dividends can reduce your SMSF’s tax bill.

To make the most of franking credits:

Invest in shares with fully franked dividends.
Use the franking credits to offset your fund’s taxes.
If the credits are more than your tax bill, your SMSF might get a refund.

This strategy can improve your after-tax returns and boost your retirement savings.

Implement a Re-Contribution Strategy

A re-contribution strategy involves withdrawing funds from your SMSF and then re-contributing them as non-concessional contributions.

This can be particularly beneficial in reducing the taxable portion of your SMSF balance, potentially lowering the tax on death benefits paid to non-dependents.

However, this strategy needs to be carefully planned to avoid breaching contribution caps and to ensure it aligns with your overall retirement planning goals.

Look into Anti-Detriment Payments

Anti-detriment payments were used to boost death benefits for eligible beneficiaries by refunding contributions tax paid by the deceased. This applied to deaths before 1 July 2017.

Although phased out, understanding past entitlements might still benefit some SMSFs. It’s a good idea to discuss this with a financial advisor.

Knowing about anti-detriment payments can help ensure your SMSF is taking advantage of all possible benefits.