Using Money Inside Your SMSF

Once you have rolled over your existing super fund into your new SMSF what do you do with it?

Sole Purpose Test

This test is the most important test with regard to your SMSF. You as the trustee need to ensure that the sole purpose of your SMSF is to provide benefits to members upon retirement or dependants in the event of a member death before retirement.

Investing

All investments also need to be on a commercial basis. Any rates or prices need to reflect true market value. Complying funds are taxed at 15%. Non complying funds are taxed at 47%!
Using a SMSF gives you a lot of freedom and choices. Main steam investments include Shares, Listed and unlisted property trusts, bonds, managed funds, cash and the list goes on. Other investments include art, gold and silver, Derivatives such as CFDs and Futures as well as Forex trading.
 
Your SMSF Advisory has highly trained professionals that are willing to help you achieve your retirement goals, why not email us now at help@realwealth.com.au and let us know how we can assist you with your retirement plans.

Borrowing 

Borrowing inside your super was for a long time not allowed. However changes in July 2010 allowed borrowing to occur under certain circumstances. These include:
 
  1. The borrowed money can only be used to acquire a single asset. 
     
  2. The borrowed money can be applied to expenses incurred in connection with the borrowing or acquisition, or expenses incurred while maintaining or repairing the asses. 
     
  3. Borrowed money can be applied to improving the asset.
     
  4. The acquirable asset is held on trust. 
     
  5. The lender has limited recourse against the SMSF trustee. 
 

Steps to borrowing using your SMSF:

The main steps to borrowing inside your SMSF include:
 
  1. Determine (with the help of Your SMSF Advisory) that borrowing would be an appropriate strategy to leverage investment
     
  2. Check the trust deed to ensure trustee has power to borrow, grant security & allow assets to be held by custodians/nominees for the trustee (if not, amend the trust deed)
     
  3. Check the investment strategy to ensure it allows for the acquisition of the investment asset and permits borrowing for that purpose (if not, amend the investment strategy)
     
  4. Source the asset for purchase, negotiate the price and reach agreement with the vendor
     
  5. Finalise borrowing arrangements with the lender including in-principle loan approval
     
  6. Determine who is to be the custodian – if a new company, purchase the new company
     
  7. Custodian resolves in writing to act as custodian for the super fund trustee in the purchase of the asset
     
  8. Super fund trustee resolves in writing to purchase the asset and to appoint the custodian to act for the super fund trustee as bare trustee of the bare trust
     
  9. Signing of the purchase contract by the custodian (note: not the super fund trustee)
     
  10. Super fund trustee provides all the deposit money for the purchase (should come directly from the super fund’s account)
     
  11. Custodian and super fund trustee sign the bare trust deed
     
  12. Super fund trustee signs all loan documents with the lender (note: super fund trustee is the borrower)
     
  13. Purchase of the asset is completed using only money coming from the super fund’s account or from the loan by the lender
     
  14. The bare trust deed is submitted to the NSW Office of State Revenue for payment of stamp duty of $50 (plus $10 for each copy)
     
  15. When the loan is eventually repaid the asset can be transferred from the custodian to the super fund trustee for nominal stamp duty provided the bare trust deed has been stamped already.
 
When borrowing inside your SMSF there are a number of issues to be considered. It is important you contract Real Wealth– email help@realwealth.com.au and talk to a trained financial expert before making any decisions.