What is a Self Managed Super fund?
A self-managed super fund (SMSF) is your own personal Superannuation Fund that gives you total control over how your benefit is invested. As a DIY investor, it is the perfect way to make your own choice on investments for your retirement rather than leaving it to others to make the choices for you.
If you set up an SMSF, you’re in charge- you make the investment decisions for the fund and you are responsible for complying with the law. Managing your own super is a big responsibility. There are strict rules that govern how you can use an SMSF, how you can invest the fund’s money and when you can access your super.
Deciding which way to go is an important decision and the best approach for you depends on your personal situation, so we recommend you see a qualiﬁed, licensed professional to help you decide. Licensed financial advisers, tax agents and accountants can help you understand what's involved and advise on your investment options.
I have a Self Managed Super Fund. Can I can invest in property?
Yes, SMSFs can now borrow to purchase real estate using a structure established for this purpose, as long as certain conditions are met. There are various loan products offered which enable these purchases to be made.
You cannot directly benefit from any property you buy using your SMSF before your retirement, under current legislation.
- You can buy any sort of property however Residential Property must be an ‘arms length’ transaction from any third party.
- The property you buy must be held in a ‘warrant trust’, ‘bare trust’, ‘special trust’ or ‘purchasing trust’.
- You can buy Commercial Property from a related party if certain conditions are met.
I already own property. Can I add this to my SMSF?
This will depend on whether the property is residential or commercial. You can buy a commercial property that you already own and even borrow against it, as long as you meet the borrowing criteria i.e. a maximum Loan to Valuation Ratio of 72% for residential property and 63% for Commercial Property.
If you want to buy a residential property, it cannot be owned by a related party as it must be ‘arms length’ - it must be purchased from and leased to an unrelated third party. It is recommended that you get independent professional financial advice before making any property investment decisions.
How can I set up loan for property acquisitions in my SMSF?
Financial planners specialising in SMSF funding can advise, set up and arrange access to a range of products from major lenders. It is important to know that you can't use a standard mortgage or loan for SMSF property acquisitions.
Do I need an investment strategy with a SMSF?
Yes, to set up and run your own SMSF it is a legal requirement to have an Investment Strategy in place so it is a “Complying Fund’. The strategy must reflect the purpose and circumstances of the fund and take into account these key points:
- How to maximise its member’s returns while taking into account any risks.
- Include diversification in long term investment strategies.
- Ensure the fund has the ability to pay benefits as members retire as well as other expenses incurred by the fund.
Who owns the assets in a SMSF?
You, as the member of the SMSF, own its assets.
Who controls a SMSF?
The trustee controls the SMSF and makes all the investment decisions for the SMSF. The trustee is also responsible for ensuring they comply with all of the legal obligations including lodging annual tax returns with the ATO.
So what is a Trustee?
The trustee controls the SMSF and makes all of the decisions on investments. When you establish a SMSF, you have the choice to either appoint and individual trustee or have a Company trustee to act for your SMSF. The trustee is responsible for running the fund and making decisions that affect the retirement interests of each fund member.
Can I use my existing company as the SMSF Trustee?
Absolutely! You can nominate your existing Company to be the trustee of the SMSF. Just seek advice as to whether using this existing Company is appropriate to act as trustee for your SMSF.
Can I rent a property from my SMSF?
Unfortunately you cannot rent residential property from your own SMSF, however in some situations you will be able to rent a commercial property if it is for business purposes only. The rent will have to be at a market rate and the premises will need to be for running your business.
What is a complying Fund?
A ‘Complying Fund’ is a fund that meets all the applicable requirements and Laws. There are heavy penalties for non-compliance. Non-compliant funds incur an income tax rate of 45%.
Do I have to pay capital gains tax when selling a SMSF investment property?
One of the major advantages of SMSF investment property is that real estate investments receive concessional tax treatment. This means that when you sell real estate owned by your SMSF, as long as it is intended for the sole purpose of retirement benefits, no capital gains tax is applicable.