Self Managed Super Funds (SMSF) is a way of providing for retirement. As the name states, a self managed super fund allows a person to manage their super fund themselves. In technical terms this means that the management of the superannuation fund is solely for the benefit of the trustees, and all trustees are responsible for managing the fund and ensuring it complies with all applicable laws and regulations.
Usually a larger amount of money is required to set up a SMSF, as the sum is then used to make investments for the purpose of retirement.
Many people also choose SMSF borrowing as an option. That means they SMSF would borrow additional funds to make investments.
When an SMSF borrows funds to purchase assets, there are a number of things to be considered. These includes:
• Legal requirements
• Documentation
• Costs involved
• SMSF trustee requirements
Legal Requirements
SMSF borrowing is allowed given certain conditions are being met. SMSF borrowing is governed by a variety of laws and legislation, in particular Section 67 (4A) of the Superannuation Industry Supervision Act 1993. It is prudent to seek legal advice on borrowing through an SMSF before making the final decision.
Documentation
Extensive documentation is required when borrowing through SMSFs. This may include, but is not limited to the following:
– SMSF deed establishment and / or upgrade
– Custodian trust
– Loan documentation
– Mortgage documents
– Lease documents, etc.
Costs Involved
SMSF borrowing may involve additional costs that you may not be aware of. This could include the following:
– stamp duty
– lender fees
– and advisory fees from your financial planner or other advisors
– insurance, accounting and other taxation advice.
SMSF Trustee Requirements
There are a number of requirements the SMSF trustee is responsible for when borrowing through the self managed super fund. This includes the following:
– compliance with the legislation
– ensuring the fund has got sufficient cash flow to repay the principle and the interest
– the trust deed allows the SMSF to borrow
– and that the transaction is in line with the SMSF investment and risk management strategies.
Because setting up and managing self managed super funds can be very technical and time consuming, it is prudent to seek independent advise, for example from a lawyer, a superannuation accountant and/or an independent SMSF auditor. This way, you are always certain that you are making educated decisions regarding your super funds. By doing so, you are forming a future retirement life that is financially stable and rewarding.