A self-managed super fund (SMSF) is a popular method of superannuation management that allows for maximum control over the holder’s retirement savings. However, SMSF investments can be quite complex, with strict regulations and rules with regard to investment options. Non-compliance with these regulations can result in severe financial and legal repercussions.
SMSF investment options
One of the most attractive components of SMSFs is their wide range of investment options comparative to managed funds. With few exceptions, SMSFs can invest in virtually any asset outlined by the investment strategy of the trustees that complies with regulations. Most commonly, SMSFs invest in:
- Property
- Shares
- Physical commodities
- Cash
- Bonds
- Collectibles
- Term deposits
- Cryptocurrency
SMSF investment rules
Investments made through SMSFs cannot be managed and used in the same way as personal, corporate or trust investments. There are specific regulations for SMSF investments, such as.
- SMSF assets cannot be used for personal purposes by any member or relative of a member. For example, an investment property purchased under an SMSF cannot be used as a residence by a fund member or any of their family, even under rental circumstances. The only exception to this rule is an established Business Real Property, meaning land or buildings used exclusively for business purposes.
- SMSFs cannot purchase assets from its members or anyone associated, excluding commercial property, listed shares and managed funds.
- SMSFs are prohibited from lending. There are exceptions to this rule, however, these are complex and have strict compliance requirements.
- Fund assets must be clearly separate and distinct from personal assets, including ensuring that assets are held under the correct name.
- Ensure that no more than 5% of the value of the fund is represented by loans to, or investments in, related parties of the fund.
- A separate bank account must be established in the SMSF’s name.
Trustee obligations
In the case of SMSFs, the trustee of the fund must also be the fund members. This means that the fund members take full responsibility for the management and compliance of the fund. While this gives the fund members near total control over their retirement savings and super investments, it also requires a great deal of financial expertise and regulatory deference.
In most instances, people looking to establish an SMSF and take greater control of their retirement savings require professional guidance. The dedicated SMSF team at Optima Partners assists more than 250 funds with their compliance obligations and we make the process as seamless as possible.
Contact us today to discuss the setup of a new SMSF or for a review or audit of your existing fund, and we’ll pair you with the right SMSF accountant for your needs.
