Self-managed super fund (SMSF)
Some people want the hands-on control that comes with a self-managed super fund (SMSF). Of course, with added control comes added responsibility and workload.
SMSFs can be suitable for people with a lot of super and extensive skills in financial and legal matters. You must be prepared to research and track your super investments regularly if you want to manage them yourself. Super is your investment for your retirement, so don't rush in.
How SMSFs work
You can set up your own private super fund and manage it yourself, but only under strict rules regulated by the Australian Taxation Office (ATO).
An SMSF can have between one to four members. Each member is a trustee (or director if there is a corporate trustee). Running your own fund is complex.
If you're running an SMSF you will typically need:
The Advantages of SMSFs
Self Managed Super Funds have many advantages for investors compared to using a traditional institutionally managed superannuation fund. These include:
SMSFs and investing in property
Amendments to superannuation legislation in September 2007 provided trustees of SMSFs with the opportunity to borrow for the purpose of acquiring a single asset.
Trustees of SMSFs are now in a position to buy a commercial or residential property through their SMSF.
Providing the SMSF has a deposit that meets the lenders loan valuation ration (LVR) requirements the lender will provide the balance of the purchase price. Banks may require a minimal deposit but trustees should be aware that negative gearing in a super fund is not tax effective due to the reduced tax rate applicable to super funds.
Legislation requires that the loan must be a Limited Recourse Borrowing Arrangement (LRBA). This facility allows the lender to hold the property as security however any existing or other assets held by the SMSF cannot be used for additional security. Subsequently the lender may insist that the members provide personal guarantees.
Trustees can either borrow from a financial institution e.g. a bank or from a related party e.g. the members or an entity controlled by the members.
For further information about purchasing an Investment Property in your SMSFs, please contact us.
SMSF Reporting & Administration Obligation
All SMSFs need to lodge an SMSF annual return with the ATO each year to:
All SMSFs are required to have the financial accounts and statements audited by an SMSF auditor. You cannot lodge the SMSF annual return until the audit of your SMSF is finalised.