Establishing a Self-Managed Super Fund means you’re in charge!
There is growing evidence to suggest that stable property returns and the lower costs of a Self-Managed Super Fund (SMSF) are fuelling higher returns. With the current bank rates returning very little return on investments, investors are looking for long term capital growth in the property market. Many financial advisors believe that setting up a SMSF is one of the most tax effective and efficient ways of saving for your retirement.
When looking into establishing a SMSF, remember that you’re in charge – you make the investment decisions for the fund and you’re held responsible for Compliance, Administration, Reporting and Tax obligations. The members of a SMSF are usually also the trustees of the fund. A trustee can be an individual or corporate trustee.
If the fund complies and remains complaint, it will enjoy significant reduced tax rates (when compared to regular investments) on the income of the fund and capital gains on investments.
A SMSF must be run for the purpose of providing retirement benefits for the members or their dependents not for buying a holiday house or house renovations!
We would recommend you discuss the administration and compliance of the fund with a professional to ensure that your obligations are met. However, remember that outsourcing your obligations does not remove your ultimate responsibility as trustee of your own fund.
Follow your fund’s trust deed…
The trust deed is your SMSF’s rule book. As an SMSF trustee you must act in accordance with your trustee responsibilities as set out in the fund’s trust deed.
Formulate and Implement and investment strategy…
The legislations requires the trustee to formulate and implement and investment strategy to take into account the likely risk and return of any investment and the availability of the funds to pay taxes and expenses.
Make sure you are complaint with the Superannuation Act (SIS)
In order to avoid hefty fines, it’s imperative that you ensure that your fund is compliant with the SIS Act and regulations. A few rules include:
- Administrative obligations such as preparing minutes of trustee meetings and decisions, keeping accounting records for expenses, tax paid etc…
- Benefit payment rules;
- Investment rules; and
- Contribution rules.
Prior to 2007 SMSF’s were not allowed to borrow funds. Recent changes to the Superannuation Industry Supervision Act (SISA) now makes it possible to borrow funds. This is certainly not an option for every investor, however, it does open up some tax efficient options towards maximising your retirement income.
When buying an investment property with your SMSF, keep in mind that loans used to buy property within a SMSF differ considerably from mainstream lending. SMSF loans have to fulfil strict ‘limited recourse’ criteria. The fact that this type of arrangement is required to be in place significantly increases the amount of paperwork required to set up the loan and also means the banks or other lenders will be much more stringent in following due diligence procedures in order to minimise their exposure to risk. A quick property purchase settlement i.e. 30 days, may not be practical with a SMSF purchase!
We hope that the information provided above helps you think about some of the issues that you will need to pay attention to when establishing a SMSF.