A SMSF is a superannuation fund set up for the benefit of 1-4 members who are also the trustees* of the fund. To be recognised and regulated by the Australian Taxation Office (ATO)a SMSF must comply with the Superannuation Industry Supervision Act 1993 (SISA) and other rules and regulations governing SMSF’s. If the fund complies, and remains compliant, it will enjoy significant reduced tax rates (when compared to ‘regular’ investments) during the Accumulation faze, namely:

  • 15% on the income of the fund
  • 10% on realised capital gains on investments held for more than 12 months

Once the SMSF moves into Pension faze (possibly 60 years old for males and above), the income and profits are tax free. In order to continue to enjoy concessionary tax rates compliance with SISA and ATO standards should be investigated and confirmed on a regular basis. The fund should also meet the so called ‘Sole purpose test’. This states that all investment activity of the fund should be aimed at securing and providing retirement benefits for the members (or for dependants if a member dies before retirement).

Prior to 2007 SMSF’s were not allowed to borrow funds. This meant that property investment was not an option for most funds. Recent changes to SISA and the banks now make it possible for SMSF’s to borrow funds under some clearly defined conditions using their primary retirement investment vehicle. This is certainly not an option for every investor and all the usual warnings about carefully examining all your options still apply!! It does however open up some exciting and tax efficient avenues towards maximizing your retirement income.

You should certainly consider this option if you:

  • Are 10 years or more from retirement
  • Are in stable employment and therefore in a position to make regular contributions to your SMSF
  • Have more than $150,000.00 in your super fund

*There are some exceptions to this e.g. if a member is a minor or is legally disqualified. In such cases the member must be represented by another trustee.