Our knowledgeable accountants answer your frequently asked questions

Navigating the world of finance can be overwhelming! If you’d like to know more about SMSF and how it can help you safeguard your future, see our frequently asked questions below.  Can’t find the answer you’re looking for? Contact the experienced team at B & M Financial on the Gold Coast. We’re here to help!

All investments must meet the sole purposes test.

SMSFs can invest in traditional assets such as shares, property, bonds and cash as well as more complex financial instruments such as options and certain kinds of warrants.

While superannuation law doesn’t stipulate what an SMSF can and can’t invest in, there are restrictions on the entities a fund can invest in and acquire assets from. For example, SMSFs cannot:

  • Acquire assets from a related party.
  • Allow in-house assets (such as a loan, investment or lease of a fund asset to a related party) to exceed 5% of total assets.
  • Borrow money except in limited circumstances.

It is best to seek professional advice if you are considering investing in more complex or non-traditional investments.

SMSFs can accept concessional contributions and non-concessional contributions.

Mandated employer contributions include:

  • Superannuation guarantee contributions.
  • Employer contributions above SG or award obligations.
  • Superannuation guarantee shortfall components.
  • Award-related contributions.
  • Certain payments from superannuation holding accounts (special account).
  • Self-employed personal contributions (that a tax deduction has been claimed).
  • Salary sacrificed contributions.

Concessional contributions are those that a tax deduction has been or will be claimed for those contributions.

Concessional contributions can be accepted for members at any time regardless of their age and number of hours worked.

Non-concessional contributions include:

  • Superannuation guarantee contributions.
  • Employee personal contributions.
  • Self-employed personal contributions (where no tax deduction has been claimed).
  • Other personal contributions and spouse contributions.

There are limits on the types of non-concessional contributions an SMSF can accept:

  • Members under 65 can accept non-concessional contributions where they have quoted their tax file number.
  • For members between 65 and 69 you can accept non-concessional contributions if the member is gainfully employed (worked at least 40 hours within a period of 30 consecutive days in the current financial year), or non-concessional contributions if the member has quoted their tax file number
  • For members between 70 and 75 you can accept employer or member contributions if the member is gainfully employed, or member contributions if the member has quoted their TFN or the contribution is received on or before 28 days after the end of the month the member turns 75. You cannot accept spouse or voluntary employer contributions
  • For members 75 and over you cannot accept any non-concessional contribution

If you don’t need an SMSF loan to use your Super to buy an investment property, there is virtually no limitation to what you can invest in. You can entertain anything from the classic suburban house to an industrial warehouse.

If you do need an SMSF loan to complete the purchase of the property, your options are a little more limited. The property will have to be in Australia and it will have to be an acceptable security for your lender, which excludes some fringe properties: small floor plans, high density buildings or locations, some rural properties, properties requiring progress payments (house and land), student accommodations etc…

We’d always recommend that you obtain a pre-approval for your SMSF before purchasing a property and would strongly encourage you to discuss any specific property with your broker before bidding or making an offer, just to ensure that it is suitable for lending purpose.

The short answer is yes, you can buy an investment property with your super.
In order to do so, the first thing that you will need is to set up a Self-Managed Super Fund (SMSF) which is the only vehicle which will allow you to use your superannuation to purchase a direct property.

Once the SMSF is set up, you and the other members of that fund (an SMSF can have up to 4 members) will be able to roll over your existing superannuation savings into this fund. That money can then be used to either purchase a property or as a deposit on property.

If you have decided to use the funds as a deposit on a property, you will need an SMSF Loan to complete the purchase. Depending on the type of property you are purchasing, that SMSF loan can be up to 70% of the purchase price.

The rental income from that property will be paid into your SMSF. The incomes can be used to pay for the SMSF loan repayments and any other costs associated with the property or the administration of the fund.

An SMSF is a legal tax structure whose sole purpose is to provide for your retirement. SMSFs operate under similar rules and restrictions as ordinary super funds.

When you run your own SMSF you must:

  • carry out the role of trustee or director, which imposes important legal obligations on you
  • set and follow an investment strategy that is appropriate for your risk tolerance and is likely to meet your retirement needs
  • have the financial experience and skills to make sound investment decisions
  • have enough time to research investments and manage the fund
  • budget for ongoing expenses, such as professional accounting, tax, audit, legal and financial advice
  • keep comprehensive records and arrange an annual audit by an approved SMSF auditor
  • organise insurance, including life and total and permanent disability cover for super fund members
  • use the money only to provide retirement benefits.

Some of the benefits of having a Corporate Trustee for the super fund are:

  • Majority of financial institutions will require a super fund to have a Corporate Trustee to allow limited recourse borrowing arrangements.
  • Please note that some lenders will not accept a trading company as a valid structure for an SMSF Corporate Trustee.
  • SMSF with a Corporate Trusteewill not require the name change for the assets held in bank, share trading or similar accounts in case of the membership/trusteeship changes.
  • SMSFs with a Corporate Trusteeonly pay one penalty to the ATO in case of SIS Act breaches, in comparison with the individual trustees SMSFs, where each individual trustee is liable for the penalty and pays the full amount.

In most situations it will be better for an SMSF to have a corporate trustee, rather than individual trustees. The major disadvantage of a corporate trustee is the up-front cost of establishing the company. However, there are longer-term benefits of having a company which generally outweigh the extra costs. The following table looks at the advantages and disadvantages of a corporate trustee over an individual trustee:

Corporate Trustee Individual Trustee
Sole Member SMSF Sole Member SMSF
You can have a SMSF where one individual is both the sole member and the sole director. A sole member SMSF must have two individual trustees
Continuous Succession Ceases Upon Death
A company has an indefinite life span; in other words, it cannot die. Therefore, a corporate trustee can make control of a SMSF more certain in the circumstances of the death or incapacity of a member. If the SMSF has individual trustees, e.g. a mum and dad SMSF, the timely action must be taken on the death of a member to ensure the trustee/member rules are satisfied (SMSF rules do not allow a sole individual trustee/member SMSF)
Lump sums and pensions Lump sums only payable on commuting pension
A SMSF with a corporate trustee can pay benefits either as pensions or as lump sums. The member must surrender their pension entitlement if they wish to obtain a lump sum (as a SMSF must have its primary purpose of paying a pension). You cannot simply pay a lump sum benefit as extra paperwork is needed to evidence the pension entitlement first being requested and then being surrendered.
Administrative efficiency Extra and costly paperwork
When members are admitted to, or cease, membership of the SMSF, all that is required is that the person becomes, or ceases to be, a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, title to all the assets of the SMSF remains in the name of the corporate trustee. To introduce a new member to an SMSF with individual trustees requires that person to become a trustee. As trust assets must be held in the names of the trustees, this will require the title to all assets to be transferred to the new trustees when a member is admitted to or exits the fund.
Greater Asset Protection Less Asset Protection
As companies are subject to limited liability, a corporate trustee will provide greater protection where a party sues the trustee for damages. If an individual trustee suffers any liability, the trustee’s personal assets may be exposed.
Estate Planning Flexibility Extra Administration and Costs
A corporate trustee ensures greater flexibility for estate planning, as the trustee does not change as a result of the death of a member. The death of a member requires there to be a change of trustee, and this gives rise to considerable administrative work and costs at an inopportune time.

The Superannuation Product Identification Number (SPIN) was previously used for surcharge reporting processes; however, the superannuation surcharge was abolished on 1 July 2005, so a SPIN should no longer be necessary for new funds.

Yes. It is possible to have an SMSF with only one member. If the single member fund has a corporate trustee, the member must:

  • Be the sole director of the trustee company; or
  • Be related to the other director of the trustee company and there are only two directors of that company; or
  • Not be an employee of the other director of the trustee company and there are only two directors of that company.

If the single member fund does not have a corporate trustee, the fund must have two individuals as trustees. The member must be the trustee with:

  • Another person who is a relative of the member; or
  • Any other person provided the member is not an employee of that person

Salary sacrifice is when your super contribution is taken out of your salary before income tax is deducted at your marginal tax rate. This reduces your taxable income, usually resulting in lower income tax overall.

Yes. The SIS legislation requires funds to have an investment strategy. There is no prescribed format for an investment strategy, and the strategy will vary from fund to fund based on, but not limited to, the following:

  • The composition of the fund’s investments
  • Future contributions to the fund
  • Risk of investments
  • Cash flow needs
  • Liquidity
  • Insurance
  • Age of members

The investment strategy must be in writing and should be reviewed at least annually, or when investment opportunities available to the fund are inconsistent to the fund’s investment strategy.

Yes, subject to certain conditions.

Yes, via Limited Recourse Borrowing Arrangements.

You can add members after the fund is setup, however, the fund must have less than five members in total.

No, establishment of an SMSF is an expense of a capital nature.

All SMSF trustees must prepare an investment objective for their fund and implement an investment strategy to achieve it. The investment strategy must reflect the fund’s purpose and circumstances and detail how it will:

  • Maximise member returns within an acceptable level of risk.
  • Diversify across a range of assets (for example, shares, property, fixed interest).
  • Pay benefits and costs as required.
  • Meet member needs taking into account individual ages, income levels, employment and retirement needs.

Other responsibilities include:

  • Invest according to their investment strategy.
  • Ensure investments meet the sole purposes test.
  • Make investments that will generate income for retirement.
  • Keep all records concerning investment decisions for 10 years.
  • Deal on an ‘arm’s length’ basis.
  • Obtain accurate market valuations of the fund’s assets.
  • Secure the fund’s assets.

The trustee can be either an individual or trustee company. Individual trustees are generally the most common. Where the individual option is chosen every member must also be the trustee. A fund cannot have a sole individual trustee, there must be more than one person as trustee if the individual option is chosen. To overcome this, a single member fund can appoint a second trustee provided the member is one of the trustees and the member is not an employee of the other trustee (unless they are relatives) or they can appoint a company as trustee. Where a trustee company is appointed, all members must be directors of the trustee company.

You can establish either a Multiple Member Fund, or a Single Member Fund.

The Trustee can be either a Company or an Individual.

If the fund has 2-4 members, it is necessary that they are all Trustees or Directors of The Trustee Company.

With a Single Member Fund, the member and another person who is not an employer, can be trustees of the SMSF.

Alternatively, there may be a Trustee Company and the member may be the sole Director.

There are certain regulatory responsibilities placed on trustees of SMSF, therefore when setting up a fund it is important to consider various issues including:

  • Will I have time to manage and administer the SMSF?
  • Will there be sufficient funds in the SMSF to make the administrative costs worthwhile?
  • Will the other trustees of the fund be suitable co-investors?

There are three levels of taxation on SMSFs.

Contributions tax
If the money paid into your super has yet to be taxed, it will attract a 15% tax on the way into the fund. This is known as concessional or salary sacrifice contributions. There is no contributions tax if your money has already been taxed. This is called non-concessional contributions.

Tax on earnings
While in the accumulation phase, the income you earn on your investments within your SMSF is taxed at a maximum rate of 15%. Capital gains are also subject to income tax at the rate of 10% after the asset is owned for 12 months.

When the SMSF is in the pension phase, all income and capital gains are tax-free if your individual members balance is under $1.6m.

Tax on benefits
There is no tax on lump sum super or pension benefits paid to people age 60 and over, provided a condition of release has been satisfied.

If you roll your benefit into a superannuation income stream product, you pay no tax on investment earnings (which includes any realised capital gains). You will also pay no tax on your income payments if you’re over 60 or have satisfied a condition of release. If you have reached your preservation age and are under 60, your pension may be taxed at your marginal tax rate. A 15% tax rebate may apply.

SMSFs can only invest in assets that meet the sole purpose test, which means they must be for the core purpose of providing benefits for retirement. This means trustees cannot derive any current day benefit from assets purchased.

SMSFs are also allowed to provide benefits for ancillary purposes such as financial hardship or compassionate grounds subject to super rules and regulations.

Make sure you investigate your insurance options before closing your current super account as age and health issues can limit your ability to buy a new policy and may increase your premiums.

Yes, with a SMSF you can organise life and total and permanent disablement cover to insure the members of the fund. The SMSF pays the cost of the insurance and claims it as a tax deduction, which makes the costs of insurance more tax effective.

Note: Your existing superannuation fund may already include insurance cover. It is recommended, before setting up a SMSF that you seek independent advice about the insurance consequences of transferring your superannuation from your current superannuation scheme.

Yes. With the introduction of superannuation choice, you can instruct your employer to pay your superannuation contributions into your SMSF.

A SMSF cannot have more the 4 members and all members must be trustees of the fund. Therefore, you have a choice as to who becomes a member of the fund which may include your partner, members of your family or a business partner. This means that super balances of each member can be consolidated into the SMSF.

The main benefits of a SMSF are as follows:

  • Control – a SMSF provides you with an opportunity to make the decisions as to how your funds are invested and how the fund is to operate. You have the flexibility to alter the fund’s investment strategy as and when required to meet the changing needs of the members or any changes in the economic climate.
  • Consolidate – Another benefit of a SMSF is the ability to consolidate your superannuation (particularly if you have a range of super funds). Consolidating your funds can save on the high fees you pay for managed funds to manage your money. You can also have up to 4 members involved. The most common setup is Mum and Dad’s combining both of their super to be able to consolidate and invest in assets together.
  • Investment Choice – your fund can invest in a large range of investments including shares, bonds, property, cash or any other asset you feel suits the investment objectives of the fund, so you can invest in assets that you understand.
  • Low taxation – Tax concessions are available for SMSF, consequently DIY super funds have become a powerful wealth creation vehicle enabling ordinary Australians to maximise their income and lifestyle in retirement.
  • Cost Savings – Managed funds may charge entry and exit fees on contributions and have annual management fees which can vary, being on average 1.5%. There will generally be set up costs, as well as ongoing administration and advisory costs. However, depending on your investment choice, there may be little or no ongoing investment management fees. For Self-Managed Super Funds (SMSF) with assets in excess of $200,000 there can often be significant cost savings when compared to superannuation managed by others.
  • Protection – the assets of the SMSF are protected from bankruptcy and other legal claims. This can be a relief when unfortunate events occur.

There is no minimum amount. However, the costs associated with a SMSF usually mean that unless the super fund has assets of at least $200,000 or can make substantial contributions soon after setup to superannuation, a SMSF may not be your most cost-effective option.

A SMSF is a private superannuation fund, regulated by the Australian Taxation Office (ATO) that you manage yourself. SMSFs can have up to four members. All members must be trustees (or directors, if there is a corporate trustee) and are responsible for decisions made about the fund and compliance with relevant laws.

SMSF Frequently Asked Questions

What is a self-managed super fund (SMSF)?

A SMSF is a private superannuation fund, regulated by the Australian Taxation Office (ATO) that you manage yourself. SMSFs can have up to four members. All members must be trustees (or directors, if there is a corporate trustee) and are responsible for decisions made about the fund and compliance with relevant laws.

What is the minimum balance required to setup a SMSF?

There is no minimum amount. However, the costs associated with a SMSF usually mean that unless the super fund has assets of at least $200,000 or can make substantial contributions soon after setup to superannuation, a SMSF may not be your most cost-effective option.

What are the main benefits of having a SMSF?

The main benefits of a SMSF are as follows:

  • Control – a SMSF provides you with an opportunity to make the decisions as to how your funds are invested and how the fund is to operate. You have the flexibility to alter the fund’s investment strategy as and when required to meet the changing needs of the members or any changes in the economic climate.
  • Consolidate – Another benefit of a SMSF is the ability to consolidate your superannuation (particularly if you have a range of super funds). Consolidating your funds can save on the high fees you pay for managed funds to manage your money. You can also have up to 4 members involved. The most common setup is Mum and Dad’s combining both of their super to be able to consolidate and invest in assets together.
  • Investment Choice – your fund can invest in a large range of investments including shares, bonds, property, cash or any other asset you feel suits the investment objectives of the fund, so you can invest in assets that you understand.
  • Low taxation – Tax concessions are available for SMSF, consequently DIY super funds have become a powerful wealth creation vehicle enabling ordinary Australians to maximise their income and lifestyle in retirement.
  • Cost Savings – Managed funds may charge entry and exit fees on contributions and have annual management fees which can vary, being on average 1.5%. There will generally be set up costs, as well as ongoing administration and advisory costs. However, depending on your investment choice, there may be little or no ongoing investment management fees. For Self-Managed Super Funds (SMSF) with assets in excess of $200,000 there can often be significant cost savings when compared to superannuation managed by others.
  • Protection – the assets of the SMSF are protected from bankruptcy and other legal claims. This can be a relief when unfortunate events occur.

How many members can be included in a SMSF?

A SMSF cannot have more the 4 members and all members must be trustees of the fund. Therefore, you have a choice as to who becomes a member of the fund which may include your partner, members of your family or a business partner. This means that super balances of each member can be consolidated into the SMSF.

Can employer contributions be included in my SMSF?

Yes. With the introduction of superannuation choice, you can instruct your employer to pay your superannuation contributions into your SMSF.

Can the fund provide insurance?

Yes, with a SMSF you can organise life and total and permanent disablement cover to insure the members of the fund. The SMSF pays the cost of the insurance and claims it as a tax deduction, which makes the costs of insurance more tax effective.

Note: Your existing superannuation fund may already include insurance cover. It is recommended, before setting up a SMSF that you seek independent advice about the insurance consequences of transferring your superannuation from your current superannuation scheme.

Will I lose my Insurance when I rollover my super?

Make sure you investigate your insurance options before closing your current super account as age and health issues can limit your ability to buy a new policy and may increase your premiums.

What is the ‘Sole Purpose’ test?

SMSFs can only invest in assets that meet the sole purpose test, which means they must be for the core purpose of providing benefits for retirement. This means trustees cannot derive any current day benefit from assets purchased.

SMSFs are also allowed to provide benefits for ancillary purposes such as financial hardship or compassionate grounds subject to super rules and regulations.

How are SMSFs taxed?

There are three levels of taxation on SMSFs.

Contributions tax
If the money paid into your super has yet to be taxed, it will attract a 15% tax on the way into the fund. This is known as concessional or salary sacrifice contributions. There is no contributions tax if your money has already been taxed. This is called non-concessional contributions.

Tax on earnings
While in the accumulation phase, the income you earn on your investments within your SMSF is taxed at a maximum rate of 15%. Capital gains are also subject to income tax at the rate of 10% after the asset is owned for 12 months.

When the SMSF is in the pension phase, all income and capital gains are tax-free if your individual members balance is under $1.6m.

Tax on benefits
There is no tax on lump sum super or pension benefits paid to people age 60 and over, provided a condition of release has been satisfied.

If you roll your benefit into a superannuation income stream product, you pay no tax on investment earnings (which includes any realised capital gains). You will also pay no tax on your income payments if you’re over 60 or have satisfied a condition of release. If you have reached your preservation age and are under 60, your pension may be taxed at your marginal tax rate. A 15% tax rebate may apply.

Is a SMSF suitable for me?

There are certain regulatory responsibilities placed on trustees of SMSF, therefore when setting up a fund it is important to consider various issues including:

  • Will I have time to manage and administer the SMSF?
  • Will there be sufficient funds in the SMSF to make the administrative costs worthwhile?
  • Will the other trustees of the fund be suitable co-investors?

What types of SMSF are there?

You can establish either a Multiple Member Fund, or a Single Member Fund.

The Trustee can be either a Company or an Individual.

If the fund has 2-4 members, it is necessary that they are all Trustees or Directors of The Trustee Company.

With a Single Member Fund, the member and another person who is not an employer, can be trustees of the SMSF.

Alternatively, there may be a Trustee Company and the member may be the sole Director.

Who can be a trustee of a SMSF?

The trustee can be either an individual or trustee company. Individual trustees are generally the most common. Where the individual option is chosen every member must also be the trustee. A fund cannot have a sole individual trustee, there must be more than one person as trustee if the individual option is chosen. To overcome this, a single member fund can appoint a second trustee provided the member is one of the trustees and the member is not an employee of the other trustee (unless they are relatives) or they can appoint a company as trustee. Where a trustee company is appointed, all members must be directors of the trustee company.

What are the Trustee’s responsibilities when managing the fund’s investments?

All SMSF trustees must prepare an investment objective for their fund and implement an investment strategy to achieve it. The investment strategy must reflect the fund’s purpose and circumstances and detail how it will:

  • Maximise member returns within an acceptable level of risk.
  • Diversify across a range of assets (for example, shares, property, fixed interest).
  • Pay benefits and costs as required.
  • Meet member needs taking into account individual ages, income levels, employment and retirement needs.

Other responsibilities include:

  • Invest according to their investment strategy.
  • Ensure investments meet the sole purposes test.
  • Make investments that will generate income for retirement.
  • Keep all records concerning investment decisions for 10 years.
  • Deal on an ‘arm’s length’ basis.
  • Obtain accurate market valuations of the fund’s assets.
  • Secure the fund’s assets.

Is establishment of a SMSF a tax-deductible expense (payable by the superannuation fund)?

No, establishment of an SMSF is an expense of a capital nature.

Is administration, including audit and tax return of an SMSF a tax-deductible expense (payable by the superannuation fund)?

Yes.

Can I add members after the fund is already setup? Or do they have to be named when you setup the fund?

You can add members after the fund is setup, however, the fund must have less than five members in total.

Can my SMSF borrow and use the borrowed money to acquire investment assets?

Yes, via Limited Recourse Borrowing Arrangements.

Can my SMSF invest in the share market and derivatives?

Yes, subject to certain conditions.

Does my SMSF have to have an Investment Strategy?

Yes. The SIS legislation requires funds to have an investment strategy. There is no prescribed format for an investment strategy, and the strategy will vary from fund to fund based on, but not limited to, the following:

  • The composition of the fund’s investments
  • Future contributions to the fund
  • Risk of investments
  • Cash flow needs
  • Liquidity
  • Insurance
  • Age of members

The investment strategy must be in writing and should be reviewed at least annually, or when investment opportunities available to the fund are inconsistent to the fund’s investment strategy.

What is salary sacrifice?

Salary sacrifice is when your super contribution is taken out of your salary before income tax is deducted at your marginal tax rate. This reduces your taxable income, usually resulting in lower income tax overall.

Is it possible to have a SMSF with only one member?

Yes. It is possible to have an SMSF with only one member. If the single member fund has a corporate trustee, the member must:

  • Be the sole director of the trustee company; or
  • Be related to the other director of the trustee company and there are only two directors of that company; or
  • Not be an employee of the other director of the trustee company and there are only two directors of that company.

If the single member fund does not have a corporate trustee, the fund must have two individuals as trustees. The member must be the trustee with:

  • Another person who is a relative of the member; or
  • Any other person provided the member is not an employee of that person

I have set up a SMSF but can’t find my SPIN number – where can I get this?

The Superannuation Product Identification Number (SPIN) was previously used for surcharge reporting processes; however, the superannuation surcharge was abolished on 1 July 2005, so a SPIN should no longer be necessary for new funds.

What are the pros and cons of individual trustees and corporate trustees?

In most situations it will be better for an SMSF to have a corporate trustee, rather than individual trustees. The major disadvantage of a corporate trustee is the up-front cost of establishing the company. However, there are longer-term benefits of having a company which generally outweigh the extra costs. The following table looks at the advantages and disadvantages of a corporate trustee over an individual trustee:

Corporate Trustee Individual Trustee
Sole Member SMSF Sole Member SMSF
You can have a SMSF where one individual is both the sole member and the sole director. A sole member SMSF must have two individual trustees
Continuous Succession Ceases Upon Death
A company has an indefinite life span; in other words, it cannot die. Therefore, a corporate trustee can make control of a SMSF more certain in the circumstances of the death or incapacity of a member. If the SMSF has individual trustees, e.g. a mum and dad SMSF, the timely action must be taken on the death of a member to ensure the trustee/member rules are satisfied (SMSF rules do not allow a sole individual trustee/member SMSF)
Lump sums and pensions Lump sums only payable on commuting pension
A SMSF with a corporate trustee can pay benefits either as pensions or as lump sums. The member must surrender their pension entitlement if they wish to obtain a lump sum (as a SMSF must have its primary purpose of paying a pension). You cannot simply pay a lump sum benefit as extra paperwork is needed to evidence the pension entitlement first being requested and then being surrendered.
Administrative efficiency Extra and costly paperwork
When members are admitted to, or cease, membership of the SMSF, all that is required is that the person becomes, or ceases to be, a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, title to all the assets of the SMSF remains in the name of the corporate trustee. To introduce a new member to an SMSF with individual trustees requires that person to become a trustee. As trust assets must be held in the names of the trustees, this will require the title to all assets to be transferred to the new trustees when a member is admitted to or exits the fund.
Greater Asset Protection Less Asset Protection
As companies are subject to limited liability, a corporate trustee will provide greater protection where a party sues the trustee for damages. If an individual trustee suffers any liability, the trustee’s personal assets may be exposed.
Estate Planning Flexibility Extra Administration and Costs
A corporate trustee ensures greater flexibility for estate planning, as the trustee does not change as a result of the death of a member. The death of a member requires there to be a change of trustee, and this gives rise to considerable administrative work and costs at an inopportune time.

Should we have a Corporate Trustee for our SMSF?

Some of the benefits of having a Corporate Trustee for the super fund are:

  • Majority of financial institutions will require a super fund to have a Corporate Trustee to allow limited recourse borrowing arrangements.
  • Please note that some lenders will not accept a trading company as a valid structure for an SMSF Corporate Trustee.
  • SMSF with a Corporate Trusteewill not require the name change for the assets held in bank, share trading or similar accounts in case of the membership/trusteeship changes.
  • SMSFs with a Corporate Trusteeonly pay one penalty to the ATO in case of SIS Act breaches, in comparison with the individual trustees SMSFs, where each individual trustee is liable for the penalty and pays the full amount.

How do self-managed super funds work?

An SMSF is a legal tax structure whose sole purpose is to provide for your retirement. SMSFs operate under similar rules and restrictions as ordinary super funds.

When you run your own SMSF you must:

  • carry out the role of trustee or director, which imposes important legal obligations on you
  • set and follow an investment strategy that is appropriate for your risk tolerance and is likely to meet your retirement needs
  • have the financial experience and skills to make sound investment decisions
  • have enough time to research investments and manage the fund
  • budget for ongoing expenses, such as professional accounting, tax, audit, legal and financial advice
  • keep comprehensive records and arrange an annual audit by an approved SMSF auditor
  • organise insurance, including life and total and permanent disability cover for super fund members
  • use the money only to provide retirement benefits.

Can I Use My Super to Buy an Investment Property

The short answer is yes, you can buy an investment property with your super.
In order to do so, the first thing that you will need is to set up a Self-Managed Super Fund (SMSF) which is the only vehicle which will allow you to use your superannuation to purchase a direct property.

Once the SMSF is set up, you and the other members of that fund (an SMSF can have up to 4 members) will be able to roll over your existing superannuation savings into this fund. That money can then be used to either purchase a property or as a deposit on property.

If you have decided to use the funds as a deposit on a property, you will need an SMSF Loan to complete the purchase. Depending on the type of property you are purchasing, that SMSF loan can be up to 70% of the purchase price.

The rental income from that property will be paid into your SMSF. The incomes can be used to pay for the SMSF loan repayments and any other costs associated with the property or the administration of the fund.

So what type of property can you purchase with your SMSF?

If you don’t need an SMSF loan to use your Super to buy an investment property, there is virtually no limitation to what you can invest in. You can entertain anything from the classic suburban house to an industrial warehouse.

If you do need an SMSF loan to complete the purchase of the property, your options are a little more limited. The property will have to be in Australia and it will have to be an acceptable security for your lender, which excludes some fringe properties: small floor plans, high density buildings or locations, some rural properties, properties requiring progress payments (house and land), student accommodations etc…

We’d always recommend that you obtain a pre-approval for your SMSF before purchasing a property and would strongly encourage you to discuss any specific property with your broker before bidding or making an offer, just to ensure that it is suitable for lending purpose.

What types of Contributions can a SMSF accept and who can make them?

SMSFs can accept concessional contributions and non-concessional contributions.

Mandated employer contributions include:

  • Superannuation guarantee contributions.
  • Employer contributions above SG or award obligations.
  • Superannuation guarantee shortfall components.
  • Award-related contributions.
  • Certain payments from superannuation holding accounts (special account).
  • Self-employed personal contributions (that a tax deduction has been claimed).
  • Salary sacrificed contributions.

Concessional contributions are those that a tax deduction has been or will be claimed for those contributions.

Concessional contributions can be accepted for members at any time regardless of their age and number of hours worked.

Non-concessional contributions include:

  • Superannuation guarantee contributions.
  • Employee personal contributions.
  • Self-employed personal contributions (where no tax deduction has been claimed).
  • Other personal contributions and spouse contributions.

There are limits on the types of non-concessional contributions an SMSF can accept:

  • Members under 65 can accept non-concessional contributions where they have quoted their tax file number.
  • For members between 65 and 69 you can accept non-concessional contributions if the member is gainfully employed (worked at least 40 hours within a period of 30 consecutive days in the current financial year), or non-concessional contributions if the member has quoted their tax file number
  • For members between 70 and 75 you can accept employer or member contributions if the member is gainfully employed, or member contributions if the member has quoted their TFN or the contribution is received on or before 28 days after the end of the month the member turns 75. You cannot accept spouse or voluntary employer contributions
  • For members 75 and over you cannot accept any non-concessional contribution

What type of investments can a SMSF make?

All investments must meet the sole purposes test.

SMSFs can invest in traditional assets such as shares, property, bonds and cash as well as more complex financial instruments such as options and certain kinds of warrants.

While superannuation law doesn’t stipulate what an SMSF can and can’t invest in, there are restrictions on the entities a fund can invest in and acquire assets from. For example, SMSFs cannot:

  • Acquire assets from a related party.
  • Allow in-house assets (such as a loan, investment or lease of a fund asset to a related party) to exceed 5% of total assets.
  • Borrow money except in limited circumstances.

It is best to seek professional advice if you are considering investing in more complex or non-traditional investments.