Can my employer contribute to my SMSF?
Yes. Your self managed superfund is portable and not linked to a specific employer, which is handy if you change jobs as you can continue to have your contributions going into the one fund.
Can my fund own artwork or collectables?
Up until June 2010, your fund could own artwork and collectables with some minor restrictions. Since the Cooper Review into superannuation in June 2010, the rules regarding artwork ownership have been tightened drastically and ownership of such assets in a SMSF will almost guarantee a ‘please explain’ from the ATO.
You must ensure the artwork is-
Stored in a special storage location away from the owners home. You must document why the artwork is stored at that particular location.
If they are available for public viewing at a gallery they must earn a market return (e.g. rent).
If a gallery rents the artwork from you, displays it and covers the piece under its own insurance policy, you must have additional insurance in the fund’s name.
You can not hang the artwork in your business premises or your home.
Please note, grandfathering exemptions exist for artwork owned prior to 30 June 2010.
Can my SMSF borrow?
The short answer is Yes. In 2007, the super rules were amended to allow self managed super funds to borrow to purchase assets on a restricted basis. This is known as a Limited Recourse Borrowing Arrangement (LRBA). This area is fraught with danger if not established correctly. Unfortunately (or fortunately…!) It’s not as simple as going to the bank and getting a loan. There are various compliance requirements that must be satisfied first.
The borrowing exception introduced for self managed super funds operates differently compared to buying a property in your own name. For SMSF's, the rules are designed to ensure the banks can only claw back the SMSF investment subject to the borrowing and not any of your other SMSF’s assets in the event of a loan default.
In this regard, the main conditions that must be satisfied to meet this borrowing exception are:
the borrowed money is only used to acquire a single asset (so you couldn’t acquire two strata units under one borrowing);
ownership of the asset is held in a separate ‘custodian’ trust structure (this structure quarantines the mortgaged asset from your fund’s other retirement savings);
the self managed super fund has the right to acquire the asset from the separate trust;
the lender’s rights (including a lender’s ability to recoup super assets under any personal guarantee you provide) are limited to the asset subject to the borrowing; and
no other charge, lien or encumbrance can be placed over the asset.
How are self managed superfunds taxed?
As with other other superannuation funds, concessional contributions to self managed superfund and earnings of self managed superfund are taxed at 15%; which compares favourably with the alternative of being taxed at the top marginal rate including the Medicare levy (47%)
Capital gains realised on assets held for less than 12 months are taxed at 15%. Capital gains realised on assets held for 12 months or more are taxed at 10%.
When you are in pension phase (fund assets are held solely for the purpose of paying a current pension), all income earned and realised capital gains are exempt from tax within the superfund.
How many members can a SMSF have?
Between 1 and 4 members. A requirement of self managed super funds is that there can be no more than 4 members. Generally speaking, you can establish a fund with your spouse, partner, children, or other family members/friends. You need to seriously consider who you want to be members of your fund as they will be equally responsible with you for the management of the fund. There needs to be a strong element of trust between the parties involved.
If you have multiple members in a fund, TP Super will prepare individual member statements tracking each member’s share of the fund.
How much do I need to start a SMSF?
Like all major investment decisions, it generally comes down to cost and return. Obviously you want to have enough to make it cost efficient whilst also achieving your investment objectives.
It will vary from client to client but generally as a rule of thumb, $300,000-$500,000 is considered to a reasonable sum to justify establishment of an SMSF. We do strongly recommend having at least $500,000 in line with ASIC's best practice guidlines. Our costs are not based on fund balance. So the more capital your fund has, the more cost efficient it becomes to manage.
I want to setup a SMSF with myself as the only member. Is that possible?
Yes. A SMSF can have only one member. You have to have either:
Remember, if your fund has more than one member, each member must be a trustee or a director of the trustee company. Exceptions apply to single member SMSF's.
a private company as a Trustee (known as a Corporate Trustee) which you are the sole director of. or
a second Trustee (a natural person). There are restrictions on who can be the second trustee and we can guide you through your options of this is of interest.
I'm a bankrupt, can I setup a SMSF?
No. A requirement of establishing a SMSF is that you are not insolvent or under administration.
Settting up an SMSF - What do you need to consider?
Setting up an SMSF can be complicated. Not getting it right can materially affect your financial situation and retirement plans. The first question you need to be sure about is whether an SMSF is the right fit. Seeking specialised financial advice can help you determine this answer. Some considerations include:
You must ensure you have an appropriate superannuation balance before considering an SMSF. While a low balance can be a red flag, it is not always a barrier to entry. However, in many cases, establishing an SMSF with a starting balance of $300,000 or below may not be in your best interests. This is because SMSFs tend to be more cost efficient with larger balances.
You must also understand your motivation for establishing an SMSF. The most common motivation SMSF trustees indicate is control. Control of an SMSF allows individuals to have a wide range of investment choice, flexibility and engagement with their superannuation. However, superannuation law is complex and you need to ensure your ambitions are allowed by the regulations and will be able to achieved in an SMSF.
Costs and time
SMSFs incur a wide range of costs in establishment and the day to day running of the fund. Ensure you are across the estimated establishment, accounting and audit costs that will be incurred by your SMSF. Speak with your advisers so you are across all other incidental costs, which unlike large super funds generally occur with fixed rates rather than as a proportion of your balance. SMSFs also require dedicated attention from trustees which will take time out of your daily life to manage. Understanding from the outset your legislated responsibilities and obligations before establishing an SMSF is important.
Once you have decided that an SMSF is right for you, you must engage in the establishment process. A specialist SMSF adviser is best person to help you to choose a trustee structure, select a trust deed, complete ATO registration and fund set up.
Investment Strategy and Insurance
Upon establishment you must also create an investment strategy which must be regularly reviewed. Your investment strategy should be in writing and must consider:
• Diversification (investing in a range of assets and asset classes).
• The liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses).
• The fund’s ability to pay benefits (when members retire) and other costs it incurs.
• The members’ needs and circumstances (for example, their age and retirement needs).
• Considering whether to hold insurance in your SMSF.
It is also common for SMSF trustees to be motivated by investing in property when establishing an SMSF. You should be sure that any investment in property, particularly when gearing is involved, is appropriate for your circumstances. Holding properties in an SMSF can also require some complex structures to ensure the law is being followed and specialist advice may be needed before making an investment choice. A lack of diversification, low balances and inappropriate property investments can have a detrimental impact on your retirement savings.
How can we help?
If you are considering an SMSF, please feel free to give us a call so that we can discuss your particular requirements and circumstances in more detail.
What are my responsibilities as trustee of the fund?
The Trustees are responsible for all decisions made in relation to the fund, including its investments and its dealings with other people and service providers.
Remember that, like all trustees, you have a responsibility to exercise due care, skill, and diligence in all your duties. This includes transactions in respect of the fund’s investments, cash, financial, and members’ records otherwise penalties may be imposed on trustees who do not comply with superannuation legislation.
You must also make sure that the assets of your Fund, and all of its records, are kept separate from those of the members, or any other person or entity.
Trustees must act responsibly, honestly and in the best interests of all members. They must invest with care, skill and diligence and must make investments at ‘arm’s length’ and on commercial terms. Any assets bought and sold must be at full market value. Income received from an investment must be the true market rate of return.
What can my SMSF invest in?
One of the requirements of being a trustee of your own fund is that you get to decide and formulate your own investment strategy. SMSF’s can invest in most investment products including direct shares, residential or commercial real estate, managed funds, property trusts, bonds and in more complex cases - derivatives products like warrants and options.
Investments must be for the ‘sole purpose’ of providing retirement benefits for the members of the fund. In other words, members or their relatives and associates must not gain any immediate benefit from the fund’s assets. A typical example is your SMSF can not own a holiday house and allow you or your relatives or associates use that house; even if they pay rent at market value. An exception exists for related parties leasing commercial property owned by the SMSF that is used in a family business for example.
What should my SMSF not do?
NEVER allow the Fund to borrow money unless permitted in very limited circumstances such as to invest in an instalment warrant arrangement.
NEVER allow the Fund’s bank account to go into overdraft.
NEVER borrow money from the Fund or use the Fund’s money to pay for anyone else’s expenses.
NEVER lend, invest or enter into a lease arrangement in respect of more than 5% of the Fund’s assets with a related entity.
NEVER acquire more than 5% of the Fund’s assets from a related party unless the asset acquired is a listed security, business real property, or property that is used wholly and exclusively in the conduct of a business or businesses.
NEVER NEVER NEVER loan money to a member of the fund or a relative!
Who is considered a 'Relative'?
Generally a relative is considered to be a Parent, Grandparent, Sister, Brother, Aunty, Uncle, Niece, Nephew, Cousin of either you and your spouse.