You can now borrow in Super – how does that work?

Changes in SIS act legislation now allow for the SMSF to borrow for purchase of either residential or commercial properties to assist with the long term goals of the fund.

It will be necessary to create a separate bare trust entity to hold the asset whilst the loan facility is in place, and upon full repayment of the loan the asset is then transferred to the original fund.

Lending ratios for these borrowings are capped at 80% for residential and 65% for Commercial property and applicants cannot select both variable and fixed rate options (i.e. it’s a case of one or the other). Loan terms can be up to 30 years on residential and 15 years on commercial.

Establishment costs vary dependent upon security property type, lender and solicitor prepared documentation fees however a typical establishment fee for a $500,000 property is in the vicinity of $5,000 including all legal costs.

Are there any other requirements around owning property within a SMSF?

You can only buy property through your SMSF if you comply with the rules.

The property:

However, your SMSF could potentially purchase your business premises, allowing you to pay rent directly to your SMSF at the market rate.

Reduced or no Capital Gains Tax when you sell – Provided you keep your property investment in your SMSF until you are over 60 and retired, when you convert your SMSF into the pension phase, you will pay no Capital Gains Tax if you decide to sell.

Reduced or no income tax on rental income – You may also save tax on the rental income from the property. Provided you keep the property inside your SMSF, you will pay no tax on rental income in retirement and you will only pay 15% tax on the rental income while you are saving for retirement. That can be a big saving on your marginal tax rate.

From time to time you may be required to obtain a valuation of the property if an event occurred that may have affected the value of the property since it was last valued. This may be due to change in market conditions or a natural disaster. Generally this will be every 2-3 years.

Can I take out Life/TPD insurance in an SMSF?

You can certainly take out Personal Insurance within your SMSF. What this means is the out of pocket cost will be paid from your fund balance. Personal Insurance should always be considered in any circumstance, but with your SMSF is becomes imperative, particularly when considering the funding of property through a SMSF. In fact the government now mandates that you must consider the appropriateness of insurance for all fund members.

Some discussion points unique to insurance in SMSFs to consider include:

How can my SMSF invest? Is there anything that my SMSF cannot own?

Your SMSF can invest in any asset so long as it meets the ‘sole purpose test.’ This could generally include direct equities, managed funds, antiques (incertain, very onerous circumstances), property, precious metals, cash, and term deposits.

Things you cannot invest in:

I’ve heard the penalties for getting it wrong are fairly hefty?

The ATO has recently been handed new powers to compel compliance by self-managed super fundtrustees with their duties and obligations. These are in addition to existing powers and commenced on 1 July 2014.

The ATO now has the power to impose administrative directions and penalties for contraventions relating to SMSFs including giving the ATO the power to give rectification directions and education directions, and imposing administration penalties for certain breaches of the Superannuation Industry (Supervision) Act 1993 (the SIS Act).

A rectification direction will require a person to undertake specified action to resolve the contravention within a specified time frame and provide the ATO with evidence of the person’s compliance with the direction.

Similarly the ATO can issue an education direction which will require a person to undertake an approved course of education within a specified time frame and provide the ATO with evidence of their completion of the course.

If an SMSF trustee contravenes a specified provision of the SIS Act, the ATO now also has the power to impose an administrative penalty, which are outlined in the following table:

How much does it cost to setup a SMSF?

We charge a fixed fee of $3,500 + GST which includes the ASIC registration of a company to act as trustee, the SMSF trust deed, Trustee minutes to establish the fund, Member applications and Trustee consents, Product Disclosure Statement for each Member of the fund, Binding Death Benefit Nomination sample form and explanatory notes for each Member.

We also assist you to complete the paperwork to rollover your existing Superannuation funds to you Self-managed superannuation fund.

What are the ongoing costs?

Our fees for the preparation of the financial statements and Tax returns are typically from $1,800 to $2,500 per year. In addition, the fund is required to be audited each year, which is a service we arrange on your behalf from a third party at a cost of around $650 per year. When comparing this to the management fees in a retail superannuation fund which are typically 1.5 – 2.5% of the fund balance, a typical SMSF with a balance above $100,000 – $150,000 would be paying the same in management fees as their existing fund.

A complex fund with a balance of $600,000 may have annual accounting and audit fees of $3,000 and therefore the effective management fee cost of 0.5%.

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