Is an SMSF right for me?
ASIC recommend that an opening balance of an SMSF should be above $200,000 as this is when SMSFs become cost-effective; however, this is not mandated. You should also consider your investment strategy, for funds under $200,000, diversification of assets can be cheaper through managed funds. SMSFs are more suitable for those with a higher risk tolerance.
What is an SMSF member?
An SMSF member is an individual who has a vested interest in the fund. This means they have made contributions to the fund and are entitled to receive benefits from it upon reaching retirement. In most cases, members also take on the role of trustees. As trustees, they are responsible for managing the fund’s investments, overseeing its administration, and ensuring that all legal requirements and compliance obligations are met. This dual role requires members to be actively involved in the fund’s operations and decision-making processes.
What is an SMSF trustee?
An SMSF trustee is the person or company appointed to be legally responsible for managing the fund and making decisions that affect the SMSF members. Acting on behalf of the fund’s members, they are responsible for how the fund operates according to the trust deed. Responsibilities of SMSF trustees include maintaining records, ensuring compliance, providing information to members, and considering the fund’s investment strategy.
What are the advantages of using an SMSF?
SMSFs allow members to make their own investment decisions and are allowed to choose from a wider range of assets than would be allowed in a retail or industry fund. Some of these assets include commercial and residential real estate, shares in companies, cryptocurrencies, and collectables such as artwork. SMSFs also offer greater flexibility in how investments are structured, tax benefits, asset protection, and pooling assets with members to increase diversification.
What investments can I make with an SMSF?
Most investments are allowed that meet the arm’s length rule, meaning they must be separate from the personal assets of members and should only provide benefits in retirements, meaning any investments that provide a benefit today aren’t allowed.
Allowed investments include:
– Shares (both Australian and international)
– Property (both residential and commercial)
– Overseas investments
– Cash
– Bonds
– Term deposits
– Physical commodities
– Collectables and personal use assets (collectables such as art can’t be displayed at a members house)
– Businesses
– Cryptocurrencies
– Managed funds
How do I buy a property with my SMSF?
You’ll need to make sure the property meets the sole purpose test, which means the property cannot be used by fund members or their related parties, and must form part of the fund’s overall investment strategy. You must check that your trust deed allows investments into property, choose a purchase method, obtain professional advice, secure financing (if required), make the purchase, and finally manage the property.
Can I live in my SMSF property when I retire?
Yes, although you must first take the property out of the SMSF and transfer it to your name. This is done through an in-specie transfer, where the property is transferred directly to you instead of being sold for cash.
Can an SMSF borrow money?
Yes, SMSFs can borrow money but only under specific circumstances and with extremely strict rules. The most common way to borrow money is through a Limited Recourse Borrowing Arrangement (LBRA), which allows the SMSF to borrow money to invest, with the lenders recourse limited to the asset being purchased.
