How a SMSF Can Set You Up For Retirement

Monday 02 May, 2022

What is a SMSF?

Self-managed super funds (SMSF) are a different way of saving for retirement. They differ from a normal superannuation fund as the members of the fund are normally also the SMSF trustees and make the important decisions on how funds are invested.

A SMSF gives you flexibility and control over where your retirement funds are invested based on your risk tolerance, and investment options can include residential and commercial property. It is important to remember that the ‘sole purpose’ of a SMSF is to provide long term retirement benefits and act in the best interest of the members of the fund or their dependants if the member dies before retirement.

SMSF Investment in Australia

Self-managed super funds are big business in Australia. Statistics released by the Australian Taxation Office in December 2021, showed net investment in Australian and overseas assets of over $840 billion – an increase of almost 10% from December 2020. Tasmanians currently have an estimated $10 billion or a 1.3% share of overall SMSF assets.

SMSF Statistics ATO Dec 2021
SMSF Statistics ATO Dec 2021

According to the ATO statistics, there were 601,906 self-managed super funds with over 1.1 million members. In Tasmania, we have an estimated 7,800 SMSF, or 1.3% of the total number in Australia.

SMSF what can you invest in?

While investment strategy generally follows the more traditional superannuation approach of investing in asset classes such as cash, term deposits and shares (48% of overall investment in December 2021) investors also have approximately $140 billion invested in Australian commercial and residential property. Cryptocurrency also made the asset list for the first time in 2019 and while investment is still relatively low ($227 million) in December 2021, it makes up 2.7% of investment for SMSF valued up to $100k.

However, before you go looking to invest your retirement savings into a new holiday home or the latest NFT trend, you should be aware that setting up an SMSF is a major financial decision that will take time, money, and ongoing commitment and the ATO has very strict rules around what you can invest your money in.

When considering an investment, the ATO expects that it will be made on a commercial ‘arm’s length’ basis and that it will be in the best interests of all fund members. So, for example, your SMSF could purchase a residential property but you, other members of the fund or their family would not be able to live in the property – sorry, there goes the holiday home!

Is a SMSF right for me?

As finance brokers, we can’t give you financial advice or help you decide if a SMSF is right for your financial situation; you will need to seek professional advice from a SMSF specialist to decide if this type of investment is right for your retirement. The ATO also has loads of useful information available here

Can SMSF borrow money to buy real estate?

So, you have done your homework, talked to your financial adviser and accountant, and your SMSF account is set up ready to go. With the help of your professional advisors, you can start building your investment portfolio in residential and commercial property and even borrow the funds for the purchase through your SMSF providing you meet the strict guidelines set out by the ATO.

When purchasing residential property, it is important to remember the following rules:

  • The property must meet the ‘sole purpose test’. Meaning the property must be purchased for the sole purpose of providing retirement benefits to the members of the fund.
  • The property must not be purchased from a related party of a member
  • The property can't be lived in by a member of the SMSF or anyone related to a member

Commercial property can also be purchased and can also be leased to a fund member to operate their business however, it must be leased at market rates and follow specific ATO rules.

Who does SMSF lending?

Borrowing to acquire an asset with your SMSF must be done under a ‘limited recourse’ borrowing arrangement. This basically means that should the SMSF default on the loan, the lender’s rights are limited to that particular asset, and any other assets held by the SMSF are protected. Of course, there is more to it than that, but that gives you the idea! Not all lenders offer this type of ‘limited recourse’ lending, and you must get it right.

This is where we can help! Here at Finance Brokers Tasmania, we have years of experience helping SMSF purchase assets and have access to a number of different lenders who can offer loan to value ratio (LVR) up to 80% of the valuation of a commercial property and 90% for residential.

So, let’s get talking!

Loan Type - if applicable *
Are you actively employed? *

You might also like...

Finance Brokers Tas Campaign 2 7016px 300dpi 68

Redraw vs Home Loan Offset Account

When you take out a home loan there are a few options you can choose to make repayments more manageable. However, choosing a financial institution and interest rates aren't the only things you need to consider. It’s also important to look for eligible home loan options which can reduce your interest repayments and give you flexibility to pay off your home loan sooner.

Fbt hobart

Get into your first home sooner with a parental guarantee!

Buying a house is likely the biggest investment you will ever make. Over the last three years, Tasmania has seen record rises in real estate prices meaning saving for a deposit to get your start in the property market is no small task. Recently released statistics show that almost 60% of first home buyers rely on help from the 'bank of mum and dad' when buying their first home.

Finance Brokers Tasmania Jake Birtwhistle10

Refinancing to Make The Most from the Equity in Your Home

Refinancing your home loan could be a value saving option if you're looking to access additional funds. With housing prices rising so dramatically over the last couple of years, existing homeowners have the opportunity to access the equity in their home to spend on things like home improvements, debt consolidation, buying a new car or another large ticket item such as a caravan or motorbike. You could even help your child break into the housing market!

Finance Brokers Tasmania Gary Watson

Is a Reverse Mortgage a Good Idea to Help in Retirement

A reverse mortgage is similar to a home loan but without the need to make regular payments. It gives people living on a pension or fixed income the ability to draw on part of the equity in their home; enabling them to live more comfortably.