Self-Managed Superannuation Fund (SMSF)
More people are taking a renewed interest in the Australian Superannuation Industry due to the current state of affairs and the Federal Government’s interest in revamping this $2.7 trillion sector. This renewed interest makes people more willing to consider a SMSF (Self-Managed Superannuation Fund) as an alternative for their retirement planning.
Unfortunately, members of industry and employer sponsored funds can find it very frustrating and time-consuming to properly understand the management fees, administration fees and insurance premiums that they pay. Below is a bit more information on the structure and benefits of a SMSF.
Defining a SMSF and its Benefits
Self managed super funds are generally small family funds that can have up to four members. Every member of the fund is also a trustee or a director of a corporate trustee. Trustees are responsible for the day-to-day operations, for fund’ investments and making sure the fund is fully compliant with any regulatory and legislative obligations.
One of the main benefits of a SMSF is that this structure makes the fund very transparent because all of the members are the trustees of the fund. It is the trustees who are responsible for investment decisions and they get a great deal of flexibility regarding which assets the fund can acquire.
Fund trustees can invest in a single commercial or residential property. In the past, a few of our clients have successfully used this strategy to purchase business real properties that they then lease back to the business. Other investment options include alternative unlisted investments in property syndicates, listed and unlisted equities as long as the investment is in compliance with the SIS Act. (Superannuation Industry Supervision Act 1993).
Borrowing in a Self-Managed Superannuation Fund
Using the Limited Recourse Borrowing Arrangements (LRBAs) is a popular method for members of SMSFs to fund the purchase of a range of assets including bundles of identical shares and property. LRBAs facilitate borrowing in an SMSF because they provide a significant exemption to the general prohibition on borrowing in superannuation funds. This exception allows fund trustees to maintain borrowings or borrow funds under a limited recourse borrowing arrangement where:
– Trustees use the borrowings to purchase a single acquirable asset or a bundle of identical assets. Trustees cannot use the borrowings to purchase prohibited assets.
– Trustees cannot use borrowed funds to improve an asset.
– A separate holding trust holds the asset so that the SMSF trustee acquires a beneficial interest in said asset.
– The SMSF trustee has the right to gain legal ownership of the asset after making one or more payments after they acquire beneficial interest status.
– Lender’s rights against the SMSF trustee’s rights are limited to the rights relating to the asset. (there is limited recourse to the SMSF trustee and other SMSF assets)
– The asset in question is not subject to any charge other than in respect of the borrowing of the SMSF trustee.
We would encourage you to consider if this is an option that is appropriate for you. As part of the initial process, you need to obtain advice from either a qualified accountant or financial advisor with the appropriate superannuation qualifications. Your advisor will prepare a comprehensive statement of advice that covers what they recommend while taking your current circumstances into account prior to establishing a self-managed superannuation fund.
For more information, please contact Eugene Khakham via email at firstname.lastname@example.org or call our office on (03) 9645 9229 if you would like to have a discussion in relation to an establishment of a self-managed superannuation fund.
The above does not constitute personal advice and cannot be relied upon to make any investment decisions. The advice does not take into account the reader’s objectives, situation or needs. You should consider the above with a view to your personal circumstances before making any decisions