Control Your Super

use your smsf to buy property


SMSF – The Key Issues

1 – Determine why you are establishing an

Before you establish a self managed superfund
the question needs to be resolved is why you and
your partner are establishing an SMSF.  Reasons

  • A desire to control your own destiny and
  • Ability to borrow and acquire direct
  • Better options in terms of death benefits,
  • Not happy with current funds
    performance or fees.

2 – Cost of establishing and maintaining

The cost of establishing and maintaining an SMSF
should be taken into consideration before you
establish your SMSF.  Although cheap web based
companies offer to establish a fund for a few
hundred dollars these should be avoided.  As an
estimate it would cost approximately $3,000 to
establish an SMSF including the preparation of an
investment strategy and death benefit

Every SMSF needs to be administered.  This
means preparing accounts, lodging BAS returns
and annual income tax returns, lodging a return
with the regulator and having the fund audited.
The cost of this is approximately $1,500 to
$2,000 per annum and varies depending upon the
size and complexity of the SMSF.

3 – Contributions

The majority of contributions received by a self
managed superfund are by way of the compulsory
employer contribution.  An employee may ask his
or her employer to put more of their
remuneration into their SMSF.  This is commonly
referred to as salary sacrifice.  The employee is
subject to the contributions caps.  For
concessional contributions this is set at $25,000
per annum for those under 50 years of age and
$50,000 for those over 50 years of age.

Another option is to put a non‐concessional
contribution into the fund.  This is a contribution
to which no tax deduction is claimed by the
person making the contribution.  The limit is
$150,000 per annum, however a person may
make a $450,000 contribution, being 3 years
rolled into one.

4 – Investments

An SMSF can invest in a wide range of areas.
From shares and managed funds to direct and
indirect property.  More recently an SMSF can
borrow to acquire an investment property being
either residential or commercial.  An SMSF can
also borrow to acquire shares or managed funds.

Some important rules to know:

  • An SMSF can only acquire commercial or
    industrial property or listed securities from
    a member,
  • An SMSF cannot acquire a residential
    property from a member or related party
    of a member,
  • AN SMSF cannot lease a residential
    property to a member or related party of a
  • An SMSF has to have prepared an
    investment strategy,
  • An SMSF should not own lifestyle assets.

5 – Retirement

The main reason for establishing an SMSF is to
provide the accumulation of enough assets to
produce sufficient income to live from in
retirement.  It is important when taking your
benefits to do it in a tax efficient and flexible way.

There is no need today to take a lump sum when
you retire.  When an SMSF is placed into pension
phase all earnings, including capital gains aren’t
subject to any income tax.  Therefore it wouldn’t
make any sense to take a lump sum and invest the
lump sum in a taxable environment (i.e. outside of
the SMSF).

6 – Death Benefits

The reality of life is that some of us will die before
running out of money and many who have an
SMSF will still have funds in their account when
they die.  It is how these funds are disbursed that
will determine how beneficiaries are taxed and
what flexibility they have going forward.

There is no utility in leaving a lump sum death
benefit to your spouse or other dependants.  A
death benefit should be left in the form of a
commutable pension.  This way the beneficiary
can select to either continue the pension, take all
the money or roll it back into their super account
within the SMSF.
NOTE:  Industry and retail funds only provide for
lump sums on death and this is one of many
reasons they don’t offer the flexibility of an SMSF.