What is a Self-Managed Superannuation Fund (SMSF)?

A Self-Managed Super Fund (SMSF) is a superannuation fund designed for members (trustees) to have direct control over their retirement savings and investments. It is an investment portfolio that differs from a normal super fund as the trustees decide how the fund operates and how to invest.

Advantages of SMSFs

  • Control: Members have control and flexibility over what their superannuation money is being invested in.
  • Potential tax savings: All earnings and contributions are taxed at 15%. When members reach 65 years of age, all contributions, earnings, and pension payments are tax-free.
  • Lower fees: An SMSF can be cheaper to maintain compared to other retail super funds.
  • Asset protection: Assets within the SMSF are protected from creditors if the members go bankrupt.

Disadvantages of SMSFs

  • Time-consuming: After the initial setup, usually with an accountant, members need to devote time to acquiring and managing their investments, as well as administering the fund. As a trustee, you need to become the investment expert, which involves committing a lot of time to research and maintenance of your investments.
  • Compliance: An SMSF is required to prepare an audited financial statement and tax return each year.
  • Expensive: Costs to maintain, administer, and audit an SMSF can run into several thousand dollars, so you need a substantial amount invested before the SMSF option is cost-effective compared to a regular super fund.

SMSF Loans

The majority of lenders will not lend to super funds for investment properties because the lender has no recourse in the event that there is a default on the loan. Therefore most lenders require a minimum deposit of 20-25% and some lenders also require personal guarantees from the members of the superannuation fund.

For new trusts, some lenders will look at the current income of the trust beneficiaries, the previous super contributions they have been making and their new proposed super contributions.

The SMSF loan can be assessed based on your proposed super contributions if they are within the maximum amounts allowed by the ATO and if you can afford these contributions without hardship.

If you are close to the retirement age then the lender may not accept your super contributions in their assessment. The lender may shorten the loan term or reduce the amount of the loan so that the rent income can cover the repayments.

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