What is a Self Managed Superannuation Fund (SMSF)?
A Self Managed Superannuation Fund or SMSF is a superannuation fund that has only up to 4 members or below and is generally used as a family superannuation vehicle. Being that it is a superannuation fund, it has to abide by various superannuation legislation and rules, and as such there are a number of things that relate to it. The benefits of SMSF’s in short are that we are able to direct your investments, have more control over your investments and more importantly, upon death or permanent disablement you have more say over where your superannuation goes. As you are a trustee and are a member, this means you are the one responsible for the decisions. This is generally very important in the event of death, where the trustees (who are the members and generally the beneficiaries of the superannuation fund) upon your passing are able to make sure that your superannuation goes back through to you. SMSF’s are probably the most effective investment vehicle and superannuation vehicle once you meet the minimum amount that makes it viable because you are also able to buy property in the fund and borrow money. In other funds, that’s not possible so you are not able to do that. There are some risks involved, and we request that you speak to one of our experienced staff at AAG and make sure that it suits your requirements.
What are the advantages of Self Managed Superannuation Fund (SMSF)?
There are a number of advantages of an SMSF and these include the following:
- The ability to make investment choices so you can invest in direct shares, such as BHP, Woolworths, banks and other shares. You can invest in speculative shares, a range of other things such as property, borrow money, buy precious metals such as gold and various other assets. There are some rules to invest in collectables such as artwork, rare cars, gold coins etc but you must meet the strict requirements.
- The ability to ensure your assets are protected.
- Selection of life insurance that meets your needs.
- The ability to enter a binding debt nomination that cannot be challenged in the Superannuation and Claims Tribunal and therefore what you want done with your superannuation is what happens.
- Pension payments and pensions can be very tax effective to meet your needs and circumstances.
- The trustee of a SMSF we recommend companies and because of that the company is separated from your personal investments and assets, therefore from an asset protection point of view they are separated from any other things that you may do, so banks or creditors (if you are in a business) are unable to attack your superannuation.
Who can be a member of a Self Managed Superannuation Fund (SMSF)?
A SMSF member must not be disqualified as being bankrupt, still in bankruptcy or discharged from bankruptcy for at least 3 years, someone who has been convicted of fraud and other conditions. Members of SMSF must generally be over the age of 18 except where they may be working and have left school.
How many members are able to be in a Self Managed Superannuation Fund (SMSF)?
A SMSF has a maximum of 4 members, so in a family situation it can be mum and dad and 2 children. If there is a larger family generally there needs to be 2 SMSF’s.
Can I do share trading through my Self Managed Superannuation Fund (SMSF)?
Yes, you can do share trading through your SMSF, provided that it is within your risk profile and within your superannuation investment strategy. We recommend you review your position before you undertake the share trading because you don’t want to take too much risk, or that if you do take that risk that you are prepared for the return if there are none or if you lose that money.
Other things that you can invest through your SMSF are a range of things, such as exchange traded funds, managed funds, contracts for difference (CMD’s), option writing and speculative share trading.
What are the interest rates like on Self Managed Superannuation Fund (SMSF) borrowing?
The interest rates that you generally pay from commercial banks for SMSF borrowing is about 1% more expensive that what you get on a personal home loan. The reason for this is that the bank sees the interest rate or the risk on the loan is higher because there is no recourse for the asset except for that property.
Can I buy property through a Self Managed Superannuation Fund (SMSF)?
Yes you can buy a property through a SMSF and you can buy a range of different properties from vacant land, apartments, development property, commercial and even rural property. The type of property that you buy will be limited by the borrowing, if any, that you do to the property. If you have borrowing on a SMSF you are unable to complete a development, for example, because you are creating a new asset. As you create a new asset, the debt that was originally funded is effectively being used to fund a new asset which is not allowed by law. If you want to buy a property that you want to do some minor works to, that is allowed with the borrowing rules, however if you want to buy a property where you put on an additional bathroom, bedroom etc and the renovation costs are up to $100,000 this is generally not allowed because the ATO regards that as changing the asset in it’s nature and because it has a borrowing it’s against the rules.
Does my Self Managed Superannuation Fund (SMSF) have to lodge a tax return income?
Yes a SMSF must lodge a tax return each year and have financial statements of the SMSF audited so an independent auditor must sign off before the SMSF’s tax return is lodged. The costs for that will vary depending on the size of the fund.