Q: What is the difference between a SMSF and a standard superannuation fund?
A: SMSFs differ from standard ‘retail’ superannuation funds as they offer greater flexibility, tax advantages, potential cost savings and the ability to pool funds to buy property. It is best to set up SMSFs from the earliest possible stages, working in partnership with a qualified accountant and coordinating the fulfilment of complex and ongoing SMSF compliance requirements.
Q: What are the responsibilities of a SMSF?
A: As the owner of an SMSF you accept responsibility for the fund at all times. A commitment which involves adhering to compliance and liability requirements while undertaking trustee responsibilities such as the operation of the fund and fund management decision making by the trust deed and super, taxation, corporation and trust laws.
Q: Are there options on what can be purchased through a SMSF?
A: Yes, this is called diversification. A SMSF can be diversified in a range of assets including:
Direct property and other assets such as derivatives
Shares and other listed securities
Separately managed accounts
Q: Can anyone buy property through a SMSF?
A: A property can be purchased using a SMSF if the purchase complies with the below rules.
The property must meet the 'sole purpose test' of solely providing retirement benefits to fund members
The property must not be acquired from a related party of a member
The property must not be lived in by a fund member or any fund members' related parties
The property must not be rented by a fund member or any fund members' related parties
You cannot put an existing residential investment property you have into an SMSF – either by way of the fund purchasing it at market value, or contributing to it within the cap limits.
See the Australian Taxation Office website for more on SMSF rules .
Q: Is borrowing different in a SMSF as compared to a regular purchase?
A: Borrowing or gearing your superannuation into property involves very strict borrowing conditions, called ‘limited recourse borrowing arrangement'. You can only purchase a single asset with a limited recourse borrowing arrangement. For example, a residential or commercial property.
You should assess whether the investment is consistent with the investment strategy and risk profile of the fund. Please speak with your qualified Mortgage Broker about the specifics of your circumstance to determine borrowing in your SMSF.
Q: Who are the best professionals to talk to about purchasing an investment property through SMSF?
A: You will first want to speak with an appropriately qualified Financial Adviser and Accountant to work out your investment strategy. Next, you will need to engage a Mortgage Broker to determine your borrowing capacity. I always recommend working with a Mortgage Broker who has had experience obtaining finance for other SMSF clientele. Lastly, you will need to gain the professional guidance from a Property Investment Consultant who will assist you through the research, negotiation and acquisition processes.
Depending on your financial situation, SMSF can give you more control over your superannuation and retirement. With complicated rules and strict governance in place, those looking at investing in property through their SMSF should always seek qualified and experienced advice.
Disclaimer: When considering starting a SMSF or purchasing a property, it is always prudent to seek the advice of appropriately qualified professionals to determine which strategies are most appropriate for your circumstance.