Breaking down investment jargon
Self-managed Super Funds (SMSFs) are a way to save for your retirement. As the name suggests, the investments are self-managed, so that means you (and any other members) are in charge of both the investment strategy and complying with all superannuation and taxation laws.
SMSFs are quite different to other superannuation options as they require you to set up a SMSF Trust (normally with the guidance of an experienced legal professional), register it with the ATO, create an investment strategy, maintain and periodically file required paperwork.
Setting up a Self-managed Super Fund requires you to first decide on a trust structure and create a trust deed (normally with the assistance of an experienced legal professional). As SMSFs have to comply with a variety of obligations many people who set up SMSFs also engage accountants, tax agents or other SMSF professionals to assist them.
SMSF’s can have between one and four members and must be set up as an individual trustee or corporate trustee structure. If the SMSF has multiple members, there can be restrictions on who can be members, particularly if any of the members are employed either directly or indirectly by other members.
An individual SMSF trustee is set up with individuals as trustees.
Each member is required to be a trustee, and unless it is a single-member fund, each trustee is required to be a member. Where you have a single member fund, a non-member trustee may be required as a second trustee.
Assets are registered in the name of the individual trustees and held in trust for the members of the SMSF. It may be less expensive to set up an individual trustee than it is to set up a corporate trustee. However you will need to have two trustees to act on the trust for decision making (i.e. two to sign on accounts) and the trustees can also have personal liability for ATO administrative penalties or other losses if the SMSF is not administered correctly.
A corporate SMSF trustee involves a company being set up to act as the legal trustee of the SMSF.
Each member of the SMSF is required to be a director of the company.
This means that where you have a single member fund, you may be able to only have a single director controlling the corporate trustee. The company has legal ownership of the assets, rather than individuals, so this may give you more flexibility in adding or removing members (for example if someone passes away).
Along with the trustee structure, you’ll also need to consider amongst other things:
This article is only a very high-level overview of SMSFs. It’s important to be aware that superannuation and taxation law impose other requirements and obligations on SMSFs that anyone setting up an SMSF needs to make themselves aware of. An independent accountant, financial adviser or legal expert may be able to assist you in understanding those requirements.
To set up a SMSF, you can use a lawyer who specialises in this area or purchase a deed from an SMSF service provider that has been 'pre-prepared' by legal experts. If you are unsure if a SMSF is right for you, you should seek advice from a professional financial planner.
For more information on SMSFs visit the Australian Taxation Office website.
A Self-managed Super Fund Loan is an investment loan in which can give an SMSF the ability to use its funds as a deposit to purchase an investment property and borrow the remaining amount required to fund the purchase. This can allow an SMSF to invest in properties that it may not otherwise have the funds to immediately purchase.
Depending on the lender, an SMSF loan may allow you through your SMSF to purchase residential, commercial or rural investment property with interest only repayment options. The maximum Loan to Valuation (LVR) ratio for loans often differs depending on type of the property you are purchasing for the loan. Some lenders may only lend to purchase certain types of properties. Make sure you check with your lender the requirements.
SMSF loans have strict requirements under superannuation law and normally require the establishment of a separate trust to hold the property. To take out an SMSF loan, you’ll first normally need to engage with a legal professional experienced in SMSF lending to help set up the required structure for an SMSF loan and ensure that any loan will meet the superannuation law requirements. Once that has occurred, you can engage with your lender. At Heritage, we currently only lend to SMSFs with a company as trustee which means we are able to lend on commercial terms. Other financial institutions may lend to SMSFs with individual trustees.
Yes! A Retirement Savings Account is an alternative option to a superannuation fund. It's run in a similar way to a regular savings account and does not follow a trust structure, making it different from a superannuation fund.
Although they aren't superannuation accounts, these accounts have many of the tax advantages of a traditional superannuation fund. Typically a retirement savings account awards a higher rate of interest in comparison to a regular savings account, as the purpose of the account is to help you save for retirement. Once you've met a condition of release or reach your preservation age, you can normally start drawing down on your account.
To learn more about how Heritage can help you achieve your investment goals, check out our Investment Hub or contact us on 13 14 22.