Wealth Creation & SMSF
An SMSF is a superannuation structure that allows members to control and manage their own funds, subject to specific laws and regulations. An SMSF must comply with the requirements of the Superannuation Industry (Supervision) Act 1993 (Cth) and relevant tax laws. Compliance enables fund members to take advantage of certain income and capital gains tax concessions implemented by the Government to encourage people to save for their retirement.
A SMSF gives members control over investment choices enabling them to tailor their own investments and take control of their retirement strategy.
The activities of the fund must be conducted through a trustee. Each member acts in the capacity of trustee whether as an individual or as a director of a corporate entity.
Benefits of an SMSF
If set up correctly a SMSF can be a viable means of accumulating long-term wealth for your retirement for you and your family.
In addition to having greater flexibility and control over the types of investments held in your superannuation, members of complying SMSFs can enjoy certain tax concessions up to specified limits. While these concessions can also be achieved by investing through regular industry or retail funds, the flexibility of SMSFs can also be ideal for other tax strategies around capital gains and income tax.
SMSFs can also provide greater flexibility with member death benefits and assist with the protection of assets against third party creditors.
Is an SMSF right for me?
SMSFs are complex structures and require sound management to ensure optimum outcomes are achieved. As trustees, fund members have various financial and administrative obligations, which must be taken into consideration when determining if an SMSF is the right choice for you.
The fund must not take part in investment strategies that are legally restricted, and funds should have a clear investment strategy which should be reviewed regularly.
The benefits of an SMSF must also be balanced with the available funds you have to invest in the SMSF and the cost of professional advice and administrative assistance to manage the fund.
Obtaining professional legal and financial advice to ensure your fund is compliant and set up for optimum performance is critical.
SMSF trust deed
An SMSF trust deed is a legal document that outlines how a particular SMSF will be established, how it will operate and be administered.
The trust deed should be written in compliance with superannuation legislation and include important information such as:
- names of the members and trustees;
- the SMSF’s objectives in meeting the sole purpose test;
- whether member benefits are to be paid as lump sums or income streams.
All SMSF trust deeds must be signed and dated by all members and trustees.
Borrowing funds to invest in real estate through your SMSF
Over recent years, legislation has been introduced allowing SMSFs to borrow funds to purchase certain ‘acquirable assets’ provided the borrowing arrangements are in a prescribed form and satisfy strict requirements.
An SMSF can only borrow funds to purchase an investment property through a limited recourse borrowing arrangement.
An SMSF may invest in commercial and residential property provided the property purchased meets the ‘sole purpose’ test, that is to support the SMSFs investment strategy in building wealth for retirement. This means that certain property investments are prohibited, for example, residential property for members of the fund (or their family members) to live in, and holiday homes intended to be used for private purposes.
Buying a property through a SMSF may be a viable investment strategy. However, the decision to set up a SMSF and purchase a property in the SMSF carries some financial risk and must form part of the overall investment strategy of the SMSF.
If you are considering using your SMSF to purchase property, it is important to obtain professional advice to ensure your proposed purchase does not breach the sole purpose test and that other pitfalls, such as excessive duty liabilities, are avoided.
We have specialist superannuation lawyers with extensive experience in all aspects of superannuation law and regulation who guide, advise and assist clients in the establishment and operation of self-managed superannuation funds.
If you need any assistance, contact us at [email protected] or call (08) 8947 4400 for expert legal advice.