As the trustees of the fund, you have the power to make investment decisions.
You have a great deal of freedom to select investments that you think will suit the needs of your fund and its members. However, there are several rules that you must abide by.
Please read on to find out what restrictions may apply to your investments.
Investments must be for the ‘sole purpose’ of providing retirement benefits for the members of the fund.
Members, relatives or associates of the trustees must not gain any immediate benefit from the fund’s assets or activities.
So, for example, any property owned by the fund cannot be used by the members or their families, even if rented out at a market rental.
Trustees owe a fiduciary obligation to beneficiaries to act in their best interests and handle the trust in accordance with the trust deed. Additionally:
Fund investment portfolios can include many of the following investments:
Do you need finance for your SMSF? We know which banks will approve loans for Self-Managed Super Funds, making it easy to implement your investment strategy.
The Superannuation Industry (Supervision) Act 1993 prohibits certain types of investments.
Assets that meet the above conditions such as:
Many people think that they can simply borrow money from their fund and pay back the money with an interest rate that is higher than the banks.
Although this may sound like a suitable arrangement, it is not allowable, not to mention incredibly risky!
There is nothing wrong with the fund lending money or making investments, if it is in accordance with the stated investment strategy.
However, the fund cannot invest in related parties. Under the Superannuation Industry (Supervision) Act 1993 A related party is widely defined to include the fund members, a standard employer-sponsor of the fund or an associate of either.
An associate can be the relative or spouse of a member and any companies or trusts that they control.
For example, Tim and Judy are the trustees and members of their SMSF. Tim works for his own company, and the company makes super contributions to Tim’s SMSF. These contributions are given to Tim in his capacity as trustee, therefore the company is a ‘standard employer-sponsor’ and will be a related party.
However, if Tim’s company were to make super contributions to Tim’s SMSF in his capacity as a member then the company will be an ‘employer-sponsor’ and not a related party.
Like under most legislation, the term ‘relative’ includes the following people:
There are many technical aspects to what is classified as a related party, so it is best to get specific up-to-date advice on whether your investment to that entity will be possible.
Many years ago, these investments may have been allowed. However now they are losing their ‘grandfathered’ protected status and cannot be added to.
You cannot reinvest a distribution or a dividend from the investment at all.
You will also most likely be forced to sell the investment in the near future if further changes are made to the law.
A SMSF can invest in a variety of assets including property and shares. But what about smaller personal assets like artwork, wine, war medals, collectibles and boats?
Technically yes, but the rules for holding these types of assets have become so strict that acquiring these assets is recommended. They are also a red-flag for the ATO and your fund may be audited.
For example, artworks can be owned, but:
The types of assets that an SMSF can invest in are generally restricted because they do not meet the sole-purpose test.
All investments must be for the benefit of the fund’s members. The regulator is concerned that these ‘non-traditional assets’ are personal purchases and the benefits cannot be extended to all members.
There are many things to consider when setting up a SMSF or using it to invest.
Enquire online today to get expert advice for your SMSF. We can help you ensure that you make the right investment decisions for your SMSF.Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.