SMSFs offer a unique way to invest in different areas such as the property market, stock exchange, and enterprise, and members of a fund can enjoy certain benefits such as reduced administrative liability and tax breaks. SMSFs are regulated by The Australian Taxation Office and they are subject to certain rules and criteria in order to enjoy the benefits that the scheme offers to investors.
If you are thinking about investing in a SMSF, it is important to know exactly what the rules are when it comes to managing your fund, and how to remain safe when deciding on your investments. This article explains exactly what is involved in a SMSF, and gives advice on how to invest in one without putting yourself or your family at financial risk.
What Is A Self-Managed Super Fund?
A self-managed super fund is a long-term savings option that offers attractive benefits to its trustees to enable them to build a retirement nest egg. The Australian government taxes SMSFs at a lower rate than other savings accounts, and there is the added advantage of reduced formal reporting requirements. In order to setup a SMSF, there must be less than 5 members and all must agree to act as trustees of the fund. It is possible for a company to become a member of a SMSF, but each director of the company would also have to be a member. More information on SMSF setup can be found online or many companies offer dedicated customer service helplines that can provide assistance. Regulations state that trustees may not receive financial remuneration for their services to the fund, but they may be reimbursed for any costs incurred whilst acting on behalf of the fund.
What Are The Safest Investment Options?
Changes to the law in 2007 has meant that trustees of superfunds may now invest in property and can even borrow up to 70% of the property value. There is also a low tax rate of 15% imposed by the Australian government, and this rate is reduced to zero once the fund reaches the pension phase. It is also possible to invest in shares through a SMSF, but those without stock market experience should seek the guidance of a financial advisor. All trustees have the right to consult an expert regarding potential investments, and this can be paid for out of the fund. A full list of regulations regarding SMSFs can be viewed at http://www.ato.gov.au/Super/Self-managed-super-funds/.
There are certain restrictions when it comes to running a SMSF, and there are substantial penalties for those who disregard the rules set down by the government. Trustees may not borrow money from the fund or lend any amount to friends or relatives. The fund may not be used for personal or business purposes, and all money contained within is strictly for retirement purposes only.
There are special circumstances that permit early access to funds such as extreme financial hardship and death, but generally the money is kept safe for each member’s pension. SMSFs are a smart way to ensure a safe and secure retirement for all members, and offer many more advantages than just placing money in a regular savings account.
William Dawson is a financial strategist and father of four. When he has some spare time, he enjoys sharing his know-how with others by blogging on the Web.