A Self-Managed Super Fund (or SMSF for short) is a superannuation vehicle that allows you greater flexibility in managing your retirement savings. Up to four individuals can ‘pool’ their funds and it gives you the opportunity to become your own ‘trustee’ rather than have an investment bank or Superannuation Company controlling your funds.
What Are Self Managed Super Funds? Do I Need One?
Is SMSF For You?
It probably gets down to how much control you want over your superannuation. A Self-Managed Super Fund provides the ultimate flexibility and broadest choice in where to invest your superannuation benefits. Establishing one allows you to invest in assets such as property that you are not normally able to through traditional funds. And because you can pool your assets as well as incorporate lending and borrowing, you can purchase larger assets you wouldn’t otherwise be able to.
Setting Up and Running an SMSF
There is no one-size-fits-all approach for SMSFs. The key questions we will discuss with you are:
- What do you wish to invest in and how will that affect the structure?
- Should you use a corporate or individual trustee?
- Do you have the knowledge and financial literacy to effectively run an SMSF?
It may sound complex but with the help of our Self-Managed Super Fund accredited Financial Advisors, we can simplify the process and provide a preferable way to control your superannuation.
What Can An SMSF Invest In?
- Shares and Equities
- Managed Funds
- Overseas Listed Shares
- Residential or Commercial Property
- Unlisted Companies and Share Funds
- Collectibles such as Coins, Artwork and Fine Wine
- Options, Warrants and CFDs
What are the advantages of buying property through an SMSF?
- Diversification – since you can borrow within your fund you don’t need to use a large portion of your fund to purchase the property. This also gives you diversity from traditional holdings such as cash, bonds and equities.
- Cash Flow – with interest rates in a downward cycle, the cost of holding a property has fallen.
- Tax Concessions within Super – in the pension phase of super there is no tax on the income or capital gains on your investments.
- Borrowing Capacity – super fund borrowing capacity is treated differently to your personal capacity. Provided you have the sufficient cash flow to support the loans, the super will allow you to increase your overall borrowing capacity.
What are the risks?
- Liquidity of fund –given property can be difficult to dispose of, you need to ensure you don’t lock it away for the entirety of your fund, especially if you are approaching retirement and your super will be your only income stream. Furthermore, the fund needs to be in a position to pay out death duties at anytime.
- Inside versus Outside – you should always calculate the difference between purchasing the same property outside of super versus inside. Depending upon the property and your tax rates, it may be beneficial to purchase it in your own name.
- Complexity – Purchasing within super is a great deal more complex in terms of the structure, the loan and tax implications. If you get anything wrong the consequences can be severe.
Can I Loan Money to My SMSF?
It is possible for you to become the ‘lender’ to the superannuation fund. You can then, potentially, charge a lower interest rate on the loan thereby reducing costs within the fund. Given the complexity of this strategy however, professional advice is a necessity.
How does buying property in an SMSF work?
If the property is going to have a loan against it, it needs to be structured in such a way that the lender cannot have any recourse against other assets within the super fund. The super fund therefore needs to have additional structural elements beyond a standard Self-Managed Super Fund.
This structure is called a ‘bare trust’ with a corporate trustee required in order to hold the property and separate it from the SMSF’s other assets. It is also important to ensure the trust deed and investment strategy of your SMSF is updated to allow the fund to purchase geared property.
Let Ark Help You
We specialise in helping clients use their super to purchase direct property to help them achieve their retirement goals. We begin with comprehensive education so you understand the strategy and the process and can rest easy knowing that the plan we implement is tailored just for you.
For further information on purchasing property through super you can download our free ebook here.
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