SMSFs have become a popular choice for an increasing number of Australians. Back in 1998 only 12% of Australia’s superannuation assets were held in SMSFs. Today the figure is 32%.
As of September 2013, nearly a million Australians were part of 510,000 SMSFs worth around $500 billion. The number of new SMSFs established is growing by around 30,000 funds a year.
SMSF’s may suit investors who want to take an active, hands-on approach to managing their superannuation nest-egg. SMSF investors need to have the available time, investment skills, super legislation knowledge, and sufficient super assets to make running an SMSF worthwhile.
What is a Self Managed Superannuation Fund?
An SMSF or self-managed super fund is a superannuation fund that has between one to four members and has elected to be regulated by the Australian Taxation Office (ATO). Other conditions include;
- ✓ Each trustee of the fund is a member
- ✓ Each member of the fund is a trustee
- ✓ Members of a fund cannot be an employee of another member of the fund, unless those members are related
Single member funds need to add in a second trustee, where the fund operates as individual Trustees, but the second trustee does not have to be a member.
How do I know if an SMSF is right for me?
An SMSF is a powerful structure for the informed investor but it’s not right for everybody. With an SMSF, if something goes wrong you will as trustee, bear the legal and financial responsibility, not your advisor, accountant or lawyer.
An SMSF suits investors who want to take an active, hands-on approach to managing their superannuation nest-egg. SMSF investors need to have the available time, investment skills, super legislation knowledge, and sufficient super assets to make running an SMSF worthwhile.
To determine if an SMSF is right for you, do the due diligence. Seek out a specialist SMSF advisor who has the skills and knowledge to provide you with a detailed analysis of the risks and benefits of an SMSF.
Some Basic Requirements of a Self Managed Superannuation Fund?
Running your own Superannuation fund is complex. When you establish an SMSF, you take on the role of either a Trustee, or the director of the company that is the trustee (called a corporate trustee). Whether you’re a trustee or director of a corporate trustee, you’re responsible for running the fund and making decisions that affect the retirement interests of each fund member, including yourself. As a trustee you must:
- Act honestly in all matters concerning the fund.
- Act in the best interests of all fund members when you make decisions.
- Manage the fund separately from your own affairs.
- Know, understand and meet your responsibilities and obligations.
- Ensure that the SMSF complies with the laws that apply to it
- Ensure No trustee receives remuneration for his / their service as a trustee and the money is used to provide retirement benefits only.
- Determine an investment strategy that ensures the fund is likely to meet your retirement needs of the members.
- Keep detailed records and organise for an annual audit by an approved SMSF auditor
All trustees and directors are equally responsible for managing the fund and making decisions – you are responsible for decisions made by other trustees even if you are not actively involved in making the decision.
You can appoint other people to help you or provide services to your fund (for example, an accountant, super fund administrator, tax agent or financial planner). However, the ultimate responsibility and accountability for the SMSF’s actions lie with you, as trustee.
SMSF and Property
SMSF can be used to invest in residential property. However you do need to consider a few important rules in regards to the property.
- Your SMSF trust deed must allow for this type of arrangement
- Investment in residential property must be consistent with your SMSF’s investment strategy. You should consider risk, return, diversification and loan interest rates.
- The borrowing arrangement must meet certain requirements to ensure that the SMSF remains compliant.
- As trustee you must be acting in the best interests of the SMSF beneficiaries.
- The ability of the SMSF to make the repayments over the term of the loan. Cash flow may be sourced from investment earnings or member contributions. You need to consider the limits to contributions that are eligible for concessional tax treatment.
- You must purchase the property from an unrelated party. Arrangements must be at arm’s-length and transacted at market rates
- The property must not be lived in a by a fund member or any fund member’s related parties.
- You should weigh up the benefits of the strategy against the costs of setting up and maintaining the borrowing arrangement.
- There are a number of rules and regulations surrounding superannuation and planning for retirement. Your Financial Planner can provide advice about borrowing strategies for SMSFs that is personalised to your situation and goals. You should also seek professional tax and legal advice.
How does our SMSF loan process work?
eChoice has partnered with one of Australia’s major banks, Westpac, to provide you with a competitively priced end to end SMSF investment property loan service. Westpac provides better value, more control and quality insights to help clients run their SMSF.
The steps involved in the SMSF loan process are;
- Your SMSF selects a residential investment property to purchase.
- Your SMSF then appoints a property trustee to purchase the property on its behalf
- Your SMSF applies for the SMSF Investment Property Loan
- Your SMSF pays the deposit.
- The property trustee exchanges contracts.
- If your loan is approved, at settlement the property trustee mortgages the property to Westpac and Westpac advances the loan. Please note that SMSF Investment Property Loans must be referred to a Westpac Panel Solicitor for review of the SMSF Trust Deed and the Property Trust Deed prior to settlement.
- Your SMSF trustee pays all legal costs and stamp duty.
- Your SMSF collects rent, pays the usual outgoings on the property and makes the loan repayments. It manages the property in the same way as any other real estate investment.
- The property is held in trust for the SMSF by the property trustee and once the loan is repaid, the legal title may be transferred from the property trustee to the SMSF, or the property may be sold.
At Medicaid Finance we can support SMSF financing and device a credit strategy to meet with your financial adviser or accountant’s brief. You also have an extensive choice of properties to select from to satisfy your SMSF property acquisition requirements by simply searching the BPRE Real estate Agent portal.
Simply contact your Medic Private Manager to start the process.