Investing In Managed Funds

Yes! Self Managed Super Funds can invest in managed funds!

Managed funds are pooled investments which collect cash from many investors and jointly invest that cash into different asset classes.

With one purchase investors can gain access to an immediate pool of diversified assets.

Benefits of a managed fund

A trustee who wishes to gain a set exposure to different asset classes can choose as few as four or five sector-based managed funds.

In a few purchases the fund’s investment strategy can be realised.

To purchase the equivalent breadth of investments – like fixed interest, Australian shares and international shares would either be cost prohibitive or would require a large financial outlay.

How are managed funds taxed in a SMSF?

When a SMSF receives a cash distribution from a managed investment it is often accompanied by a long winded tax guide to explain (in painful detail) how each little type of income should be reported in the fund tax return.

Put simply, you should remember that managed fund distributions are taxable based on entitlement. For example, if you were entitled to receive a June distribution, but it was actually paid in July, the distribution is still taxable in that year.

The fund will tell you this but it is often a surprise to trustees who think on a cash basis.

Can managed fund components can be taxed differently?

Yes they can! They vary in the following ways:

  • The tax free portion is tax free.
  • The tax deferred portion is tax free, but reduces the cost of your investment.
  • Foreign tax credits are added to the other income.
  • Foreign tax credits can be claimed as against tax paid on the foreign income.
  • The franking credits are added with other income amounts.
  • The franking credits can be claimed as a tax offset.
  • Capital gains in December are distributed in February.

Only two thirds of the discountable gain is included in your tax return income.

Different types of funds

There are numerous types of funds, each with differing characteristics. An exchange traded fund is similar in nature to a managed fund, except that it is bought and sold on a securities exchange.

A listed investment company is also like a managed fund, however it does not grow to meet extra demand or shrink to redeem investments.

This can affect the quoted price and cause it to differ from the underlying asset value.

Exchange traded funds are now becoming more popular because they can be bought on a securities exchange and often track an index.

Wondering which managed fund would be best to invest in? Please enquire online today and our expert team can give you the advice you need to make an investment decision that maximises your fund’s profitability.

Paying tax on the sale of your managed fund

When a fund is sold a trustee must determine the capital gain made on the sale, being proceeds of the sale less the cost base of your investment in the fund.

If you make a gain on an investment held over one year, you can reduce that gain by 1/3rd and pay tax of 15% on the remainder.

The proceeds are fairly straightforward to calculate – it’s the cash received.

The cost base is where it gets tricky! You must take the cash cost of your investment and reduce it by the tax deferred distributions received over the years.

In effect, the tax deferred distributions increase your eventual capital gain.

Accumulated tax deferred income

What if the accumulated tax deferred income is larger than the cost base?

In this case your cost base is nil (not negative) and the excess is immediately taxable as a capital gain.

So every additional tax deferred distribution is an additional capital gain.

Call us today!

For more information on investing in managed funds, please enquire online today.

Our experts will help guide your investment decision and ensure that your SMSF structure is set up to accommodate your needs.

Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.