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What is a Self-Managed Super Fund or SMSF?

A Self-Managed Super Fund is a private super fund that allows you to manage your own superannuation investments for your retirement. Not everyone can set up their own super, so understanding the basics is crucial before getting started.

Most Australians have their super run by a third party – in the form of a fund manager, large corporation or an industry body.

How does an SMSF work?

An SMSF works similar to every structured large-scale superannuation fund, yet there are select few distinctions in how they are controlled by the government and how funds are dispensed. One primary difference between SMSFs and larger funds is that they must have no more than four members. On top of that, the fund is controlled by every single member equally.

Who can be a member?

An SMSF can have a maximum of four members who usually belong to the same family. However this isn’t always the case in certain instances. A member must not be working under another member except if they are akin.

Who can be a trustee?

Basically, SMSF is a trust and similar to any trust is operated by the trustees or administrators. There are two SMSF trustee frameworks:

  1. Where members are designated as trustee in their sole capacity.
  2. Where a company is established as the trustee, and the SMSF’s members having as directors of that corporation.

In either instance, the members manage the fund as an umbrella rule, they are either trustees or directors of the corporate and must not be paid for undertaking their trustee obligations.

What are the benefits of SMSFs?

  • Provides many investment options – direct and collateral investing
  • Supplies substantial control over your investment plans
  • Allows access to investment equipping possibilities
  • Delivers the capacity to run fees successfully which proceeds in lesser long term costs
  • Available tax schemes as authorized by the Federal Government
  • Lays out a stable earning during retirement employing your individual investment plan
  • Permits you to take charge of your family using methodical estate arrangement opportunities

Think about these questions before deciding if an SMSF is suitable for you:

  • Is the fund exclusively for retirement welfare?
  • Are you able to devote time to oversee your own fund?
  • Will the benefits exceed the costs?
  • How is shifting to your own SMSF influence your present superannuation perks?

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SMSFs and properties

Can you buy a residential property using an SMSF?

Yes you can, but there are various limitations applicable such as:

    • A trustee or whoever correlated to the trustee, must not live in a residential property that you have bought via SMSF
    • A trustee or anybody associated to the trustee, cannot lease the property acquired through the SMSF
    • The SMSF shouldn’t buy a property owned by a trustee or anyone affiliated to the trustee
    • The purchase should meet the “sole purpose test” of exclusively supplying retirement welfare to fund members

Can you acquire a commercial property using an SMSF?

Purchasing a commercial property is customary for small and medium-sized enterprises (SMEs) via an SMSF and rent it back to one-another by compensating lease to the SMSF. This is lawful on condition that it is kept on an “arm’s length principle” which primarily means that the entire investment must be controlled on a stringent commercial grounds, with the assets demonstrating their fair market value.

The following circumstances should be met if you are allowing for this sort of purchase:

    • The lease’s terms has to be economically or market value driven.
    • You’re obliged to receive periodic property valuations to certify the lease you’re paying is the proper market value.
    • You need to settle your lease on the dot and in full such as other lease accord.

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