SMSF Rules you can’t ignore

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Managing your own superannuation has obvious appeal. A self-managed fund gives you the flexibility to control where your retirement savings are invested.

While the money’s locked up until you retire, the super system acts as a massive tax haven that you can use to build wealth – through shares, fixed interest investments or property, for example.

But watch out! SMSFs are heavily regulated by the Australian Taxation Office. There are hundreds of sometimes irritating rules that you must comply with or risk the wrath of the ATO.

Property investments through super are in the spotlight right now.

ATO acting commissioner Bruce Quigley is worried people are using their SMSFs to invest in real estate without fully understanding their obligations under the law, and that some people are deliberately trying to get around the law.

“[That] can result in the fund’s trustees being disqualified, facing civil penalties or even facing criminal charges,” Quigley says.

Some arrangements, if structured incorrectly, can’t be restructured or rectified, he warns.

“The only option may be to unwind the arrangement, which could involve forced sale of assets at an inconvenient time. This could be very expensive for the fund with potential stamp duty and tax consequences.”


What you should (and shouldn’t) do:

  1. Avoid mistakes and above all make sure your arrangements are legal. Seek professional advice if in doubt.
  2. If you’re using borrowed money to buy a property through your SMSF, make sure you establish a holding trust by the time the purchasing contracts are signed. A property with debt must be held in a trust inside the fund, even though that might mean extra set-up costs. Also, make sure the property is held in the name of the holding trust’s trustee, not the individual member’s name.
  3. Don’t borrow money to pay for improvements or renovations to a property held inside the SMSF. The ATO just won’t allow that. It’s understandably unpopular and industry participants are pressuring the ATO to change this rule, but for now, that’s how it is.
  4. Don’t buy residential property or unlisted shares through the SMSF, from someone related to you. That means your spouse, family members or business partners. That’s even the case if the transaction is supported by a registered valuation. While it seems strange to draw a distinction, it is OK to buy commercial property or shares from a related party, Chan & Naylor director Ken Raiss says.
  5. Make sure your SMSF has no more than four members – even though that might mean you have to leave family members out of the fund.
  6. Don’t contribute above the caps. Most people can contribute up to $25,000 before tax through salary-sacrificing arrangements. After tax, you can contribute up to $150,000 each year, or a total of $450,000 over three years. If you go over those limits, the tax penalties can run to a whopping 93 per cent of the contribution.
  7. Make sure the fund’s trust deed is up to date. There are services that can help you do this.
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