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11 Key Considerations Before Setting Up an SMSF

A structured guide to the questions every prospective SMSF owner must answer first

SONAS WEALTH | THE SMSF COACH

SMSF TRUSTEE EDUCATION SERIES

By Liam Shorte | Fellow SMSF Specialist Advisor™ | Financial Planner

⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223.

Hi, I’m Liam Shorte — better known as The SMSF Coach. As a Financial Planner and SMSF Specialist Advisor with over two decades helping families take control of their super, I’ve seen it all. We often see people, who jumped in to an SMSF before really understanding how it works and it can be a time consuming and an expensive mistake to unwind.

Introduction

An SMSF can be one of the most powerful retirement structures available to Australians — but it is not the right choice for everyone. With over 661,000 SMSFs now operating across Australia and record numbers being established each quarter, I want to make sure that enthusiasm doesn’t outpace understanding.

Before we help anyone establish a fund at Sonas Wealth, we work through a rigorous set of questions together. Some people come in certain an SMSF is what they need. Some leave the conversation feeling the same way. Others discover a better path. Either outcome is a good one — because the goal is never to set up a fund. The goal is to protect and grow your retirement.

If someone is telling you to set up an SMSF then please read our previous article Red Flags to Watch Out For When Considering and SMSF

Here is what that conversation looks like.

1. What Are You Actually Trying to Achieve?

This is always the first question. Setting up an SMSF because you’ve heard it’s a good idea, or because a colleague mentioned it over coffee, is not a strategy. I want to understand your short, medium and long-term goals — and whether an SMSF is genuinely the best vehicle to get you there.

Sometimes the answer is clearly yes. Often it opens a broader conversation about alternatives that may serve your true objectives just as well, or better. I’ll never hesitate to point you toward a different path. An SMSF is not the right answer for everyone, and I don’t believe in setting one up just because we can.

2. Is Locking Money Away the Right Move Right Now?

Superannuation is long-term money. For most people, it cannot be accessed until their preservation age — typically 60 — when they meet a condition of release. Before directing more wealth into super, we need to look honestly at your current financial commitments and what flexibility you might need in the next decade.

In many cases, redirecting surplus funds into debt reduction, a personal investment portfolio, or an insurance bond for tax-effective investing can deliver better outcomes while preserving access to capital. Super is a powerful tool — but it needs to be the right tool for the right job at the right time in your life.

💡 Worth Knowing: Carry-Forward Contributions

If your total super balance (TSB) is below $500,000, you may be eligible to use carry-forward concessional contributions — sweeping up unused cap room from the previous five financial years into a single large pre-tax contribution. This can be a powerful complement to an SMSF strategy, particularly when triggered by a significant asset sale or inheritance. Ask your adviser whether this applies to you before deciding how much to contribute and when.

3. Do You Have the Time, Knowledge and Discipline to Run a Fund?

This is the question that surprises people most. Running an SMSF is not passive. It requires you to understand your trustee obligations, review your investment strategy regularly, stay across legislative changes, and commit genuine time to governance — every year, not just at setup.

📖 From the Coaching Files

I’ve had to talk a number of busy executives and business owners out of SMSFs when they couldn’t find a single hour in their week for a meeting — yet expected to manage an $800,000 investment portfolio. I’ve also worked with a couple who considered themselves property experts because they owned four regional Queensland properties, none of which they had ever visited. When we analysed the numbers, the yields were poor, capital growth was flat, and deferred maintenance costs were substantial. Their existing diversified super fund was objectively the safer option until they genuinely developed their property knowledge.

4. What Do You Have to Roll Over — and Can You Actually Move It?

Not all superannuation balances can be rolled into an SMSF without careful consideration. Before making any decision, we need to confirm:

Access restrictions — Some government, military or defined benefit funds (MSBS, Local Government Super) cannot be accessed before a specific age or in certain circumstances.
Defined benefit value — In some cases, the guaranteed benefit from a defined benefit scheme is simply too valuable to walk away from. The certainty of income in retirement may outweigh the flexibility of an SMSF.
Exit costs and liquidity — High exit fees or illiquid underlying investments can make an immediate rollover costly.
Employer mandated funds — Some enterprise bargaining agreements require contributions to flow to a specific fund, which may limit your ability to redirect future Super Guarantee payments. Also some employers offer 1%+ extra to employees using their default fund…don’t lose out!

We work through exactly what you hold, what’s moveable, and what the true cost of moving is — before any action is taken.

5. Have Your Insurance Needs Been Properly Addressed?

Insurance inside superannuation is one of the most commonly overlooked elements of an SMSF transition. When you leave an APRA-regulated industry or retail fund, you typically lose group insurance cover — often cover that would be difficult or impossible to replace on the open market due to health changes since you first obtained it.

⚠️ Critical: Insurance Lost on Rollover Cannot Always Be Reinstated

Once you roll out of an industry or retail fund, group life, TPD and income protection cover is typically cancelled and cannot be reinstated. If your health has changed since that cover was granted, you may find individual cover is either unavailable or prohibitively expensive. Get a full needs analysis before you move a single dollar. Your SMSF trust deed must also document that insurance needs have been considered — it is a compliance requirement, not optional.

At Sonas Wealth, we conduct a full needs analysis covering life insurance, total and permanent disability, and income protection as part of every SMSF review — before any rollover decision is made. Read our guide to managing insurance in a new SMSF or retaining in your existing account

6. Are You Genuinely Clear on Your Trustee Responsibilities?

When you sign the Trustee Declaration, you are making a legal commitment that you understand the obligations of a trustee under superannuation law. Saying you didn’t understand those obligations after a compliance breach is not a defence.

As a trustee you are personally responsible for every compliance decision, every investment decision, all record-keeping obligations, and every reporting requirement the fund faces — even if you outsource administration to a professional. We will make sure you have a solid knowledge base before you commit. Your urgency to establish a fund doesn’t override our duty of care to you.

🔑 Key Trustee Obligations at a Glance

You need to read, understand and then sign off on the ATO SMSF Trustee Declaration

Maintain a written investment strategy and review it regularly

Arrange an independent annual audit by an approved SMSF auditor

Lodge an annual return with the ATO and pay the supervisory levy ($259 in 2025–26)

Keep detailed records of all transactions, decisions and meeting minutes for at least five years (ten years for some records)

Ensure the fund complies with the Sole Purpose Test at all times

Never use fund assets for personal benefit — not even temporarily

Here are helpful links to educational material from trusted sources like the ATO and their excellent SMSF education videos or the Government’s MoneySmart website SMSF pages. Our SMSF Coach blog has over 250 useful educational articles on everything SMSF.

7. Does the Economics Actually Stack Up?

Fixed costs don’t scale down with a smaller balance. The maths needs to work in your favour before an SMSF makes financial sense compared to the APRA-regulated fund you’re currently in.

Cost Component	Typical Range (2025–26)
Setup costs (establishment + trust deed)	$1,500 – $3,000
Annual running costs	$2,000 – $5,000+ (You can find lower at a trade off)
Annual independent audit	$400 – $800
ATO supervisory levy	$259 per year
ASIC annual review fee – sole purpose trustee co.	$67 (look at paying 10 years upfront)

Fund Balance	Annual Cost ($3,500)	Effective Fee Rate
$150,000	$3,500	2.3% — hard to overcome
$200,000	$3,500	1.75% — borderline
$300,000	$3,500	1.1% — becoming viable
$500,000+	$3,500	0.7% or less — cost effective

You can run your SMSF for lower with some online providers but beware of limitations or deals with related parties where they get a cut of brokerage or mortgage commission or straight our referral fees that you ultimately pay.

$200,000–$250,000 in combined member balances is the minimum we normally use.

8. Do You Understand the Risks — Not Just the Benefits?

SMSFs offer genuine advantages: investment control, tax flexibility, estate planning sophistication, and the ability to hold assets such as direct property and business real property. These are real, and for the right person at the right balance, they are compelling.

✅ Potential Benefits	⚠️ Key Risks to Manage
Engagement: we find people who take an active interest in their super are more likely to contribute more, invest consistently and therefore benefit from compound growth	Not understanding how the SMSF works or losing interest.
Full control over investment decisions	Personal trustee liability for all compliance failures. Could mean you can no longer be a director of your own business!
Access to direct property, unlisted assets and collectibles	Concentration risk — especially in property-heavy funds
Economies of scale investing as a couple or family and one SMSF set of fees rather than paying for multiple accounts.	Disagreements on how fund should be managed like different risk tolerances or something more serious like divorce
Tax planning flexibility (timing of contributions and capital gains). Not having to move accounts when changing from accumulation to pension.	Liquidity problems in retirement if assets are illiquid
Superior estate planning via binding death benefit nominations	ATO audit risk if governance is poor
Business real property can be held and leased to related parties	Poor diversification if trustees lack investment expertise
Tax-free income in pension phase on eligible assets	Fines up to $18,000 per trustee for serious breaches
Agility and Transparency: Members have full transparency over their investments, fees, and tax positions. The fund can also react quickly to market changes or legislative updates.	Indecision – being reluctant or afraid to press “Buy” or more often reluctance to admit a wrong call and “Sell”

We’ll give you a balanced view, not a sales pitch in either direction. No reasonable investment reliably produces excessive returns over the long term — and any adviser suggesting otherwise should be a red flag.

9. Have You Thought Carefully About Your Investment Strategy?

Your investment strategy is not a formality — it is a legally required, living document that must genuinely reflect your objectives, risk tolerance, diversification approach, liquidity needs, and the insurance requirements of all members. The ATO expects it to guide every investment decision and to be reviewed regularly, particularly when member circumstances change.

A strategy that says “we will invest in whatever we feel like” is not compliant. We help you build something grounded in realistic expectations and genuine retirement planning — not just a document to tick a box.

Follow our guide here 6 Key Considerations for your SMSF Investment Strategy

10. If Borrowing Is Part of the Plan, Is It Genuinely Affordable?

Limited Recourse Borrowing Arrangements (LRBAs) can be a legitimate strategy inside an SMSF, particularly for acquiring commercial or business real property. But they add significant complexity, increase risk, and must be structured correctly from day one — a defect in the LRBA structure can invalidate the arrangement and create a compliance breach.

Before proceeding with any gearing strategy, we assess:

Whether borrowing is genuinely appropriate for your circumstances and risk profile
Whether the loan is serviceable from the fund’s income and contributions, without relying on member contributions to cover shortfalls indefinitely
Whether the long-term retirement outcome is improved — not just the short-term tax position
Whether the trust deed and LRBA documentation are correctly structured

We’ll walk you through the rules, the process, and the most common mistakes to avoid before you commit to anything.

In fact we have an Education section just on Property in an SMSF with over 17 articles to guide you on every aspect of the strategy. WE DO NOT SELL PROPERTY BUT WE DO CATER FOR YOUR INVESTMENT PREFERENCES

11. What Happens If Circumstances Change?

Life doesn’t stay still. Divorce, death, disability, loss of income, or a decision to move overseas can all complicate an SMSF significantly — and if you haven’t planned for these contingencies from the beginning, unravelling them can be expensive and stressful.

Death benefit nominations — Binding nominations direct the trustee how to distribute your super on death. Not all trust deeds allow binding nominations; check yours. Non-lapsing nominations provide greater certainty.
Incapacity — If a trustee loses capacity, the fund may be unable to operate without an enduring power of attorney in place. This is a commonly overlooked risk.
Relationship breakdown — Super splitting orders following a divorce can create significant complexity in an SMSF, particularly where illiquid assets are involved.
Moving overseas permanently — If all members relocate offshore, the fund may fail the Australian residency test and lose its concessional tax status. Seek advice well before any long-term departure.
Winding up — Once a fund is wound up, it cannot be reactivated. Ensure you have a clear exit strategy and understand the process before you need it. We have you covered How to Wind Up Your SMSF

My View as The SMSF Coach

I’ve spent my career helping trustees get more from their SMSF — but I’ve also spent a lot of time talking people out of one when the timing, balance, or circumstances weren’t right. Both conversations matter equally.

The SMSF sector is growing rapidly — over 661,000 funds, more than 1.2 million members, and record establishment numbers in recent quarters. Some of that growth reflects genuinely well-considered decisions by people who understand what they’re taking on. Some of it reflects enthusiasm running ahead of understanding.

An SMSF done well can be one of the most effective long-term wealth structures available to an Australian. An SMSF done poorly — or set up for the wrong reasons at the wrong time — can quietly erode the retirement security it was meant to protect. My job is to make sure you know which one you’re looking at before you commit.

If you’ve read this and still think an SMSF might be right for you, let’s have that conversation properly.

Pre-Decision Checklist

Before committing to establishing an SMSF, work through each of the following with your adviser:

#	Checklist Item	✅
1	Your goals and objectives genuinely align with what an SMSF can deliver	☐
2	Locking money in super is the right move given your current financial position and commitments	☐
3	You have the time, knowledge and discipline to fulfil trustee obligations year-on-year	☐
4	Your current fund balances can be rolled over — access restrictions and exit costs confirmed	☐
5	Your current fund balances can be rolled over — access restrictions and exit costs confirmed	☐
6	A full insurance needs analysis has been completed before any rollover	☐
7	You have read the Trustee Declaration and understand your legal obligations	☐
8	The cost-benefit analysis confirms an SMSF is cost-effective compared to your current fund	☐
9	You understand both the benefits AND the risks, including compliance penalties	☐
10	A compliant, meaningful investment strategy has been drafted and reviewed	☐
11	If borrowing is planned — LRBA affordability, structure and documentation confirmed	☐
12	Death benefit nominations, power of attorney and exit strategy have been considered	☐
13	Corporate trustee vs individual trustee decision made and reasons documented	☐

📌 Key Takeaways

✅ An SMSF can be a powerful retirement structure — but only when established for the right reasons, at the right balance, and by trustees who understand the obligations.

💰 The cost-effectiveness threshold is around $200,000–$250,000 in combined member balances. Below that, fixed running costs represent a significant fee drag on returns. The true cost depends on the mix of investments and services you engage.

⚠️ Insurance cover held inside an industry or retail fund is typically lost on rollover and may not be replaceable. Get a needs analysis before moving any funds.

📋 Signing the Trustee Declaration is a legal commitment. Not understanding your obligations is not a defence if something goes wrong.

🚫 ATO penalties for serious trustee breaches can reach $18,000 per trustee — and non-compliance can result in the fund being taxed at 45%.

🔑 Your investment strategy is a legal document, not a formality. It must genuinely reflect your objectives, diversification approach, liquidity needs and member insurance requirements.

💡 Always obtain personal advice from a licensed SMSF specialist before establishing a fund or making any rollover decision.

Thinking About an SMSF — or Want a Second Opinion? If you’d like a no-obligation conversation about whether an SMSF is right for your situation — or you want a straight-talking second opinion on an offer you’ve received — reach out. That’s what The SMSF Coach is here for. http://www.smsfcoach.com.au | Sonas Wealth, Sydney www.sonaswealth.com.au

Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation

Are you looking for advisors that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & Fellow SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153
Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
Suite 4, 1 Dight St., Windsor NSW 2756

Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223

This information has been prepared without taking into account your objectives, financial situation, or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation, and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Red Flags to Watch Out For When Considering and SMSF

What You Need to Know Before You Sign Anything

SONAS WEALTH | THE SMSF COACH

SMSF TRUSTEE EDUCATION SERIES

By Liam Shorte | Fellow SMSF Specialist Advisor™ | Financial Planner

Hi, I’m Liam Shorte — better known as The SMSF Coach. As a Financial Planner and SMSF Specialist Advisor with over two decades helping families take control of their super, I’ve seen it all. Every week I speak to people who’ve been approached about setting up a Self-Managed Super Fund (SMSF). Some of those approaches are genuine but many are not.

Too often, what looks like helpful advice is really a cleverly disguised sales pitch — designed to get you to move your super so the promoter can sell you their product, charge high fees, or worse, put your retirement savings at risk. The ATO is watching this space more closely than ever, and the consequences for getting it wrong as a trustee are serious and personal.

This is your no-nonsense guide before you sign anything.

1. How Are You Being Approached? Sales Pitch or Genuine Advice?

Legitimate SMSF advice starts with your situation — not the adviser’s product. A proper adviser asks about your retirement goals, risk tolerance, existing super balance, insurance needs, available time, and whether an SMSF even makes sense for your circumstances. Only then do they make a recommendation.

The product-led approach works the other way around. The SMSF is not the goal — it is the vehicle. Someone wants to sell you a property, a managed fund, an unlisted investment, or a crypto platform. The SMSF is simply how they access your superannuation balance.

Warning Signs in How You Were Approached

Unsolicited contact — cold calls, emails, social media ads, or “free seminars” promising to “unlock the power of your super”.
Pressure to act fast — “limited time offer”, “EOFY special”, or “get your money out before the rules change”.
Promises that sound too good to be true — guaranteed returns, easy access to your super before retirement, or “we’ll handle everything so you don’t have to lift a finger”.
Focus on a single product — a specific property deal, crypto scheme, or investment the promoter (or their related parties) controls.
A referral chain where the adviser, accountant, mortgage broker and property manager all recommend each other — and all earn from the same transaction.

If the conversation quickly moves to rolling your super into a new SMSF so they can “invest it for you” or “help you buy that investment property” — stop. That is usually the gateway to selling their product, not acting in your best interest.

💡 From The SMSF Coach Ask yourself one question before you go any further: is this person excited about my retirement goals, or excited about my super balance?

🚩 Red Flag 1: The Approach Starts With a Product, Not Your Situation You were contacted unsolicited — by phone, email, social media or a seminar. The pitch centres on a specific investment or property rather than a review of your financial situation. You feel pressured, rushed, or told there is a deadline you must meet. The adviser cannot clearly explain what they earn if you proceed — or refuses to tell you.

Quick Licence Check — Do This Before Anything Else

Anyone who recommends you set up an SMSF must hold an Australian Financial Services (AFS) licence, or be an authorised representative of a licensee. This is not optional — it is the law. Check them on:

The ASIC Financial Advisers Register (search at moneysmart.gov.au)
The Tax Practitioners Board register (if they are advising on tax matters)

No licence? Walk away immediately and consider reporting them to ASIC.

2. Do They Provide Genuine Education — or Just Hype?

Real SMSF education explains the responsibilities, not just the glamour. Any adviser worth trusting will make sure you understand what you are signing up for before you commit to anything.

What Proper Education Must Cover

The sole purpose test — your SMSF must exist solely to provide retirement benefits to members. No personal benefit, no holidays, no business bailouts.
Arm’s length rules — every transaction must be done on commercial terms, as if with an unrelated third party.
Your annual audit obligation — an independent approved auditor must review your fund every single year.
Investment strategy requirements — you must have a written, current strategy that actually reflects how your fund is invested.
Record-keeping and valuation duties — all assets must be valued at market value at 30 June each year, with supporting evidence.
Your personal liability as trustee — you are personally responsible for compliance. Administrative penalties cannot be paid from fund assets.

Red flag material is all glossy brochures and “success stories” with no mention of the paperwork, record-keeping, or what happens if you get it wrong. If they say “we’ll do it all for you” and gloss over your ongoing trustee duties, they are not educating you — they are disarming you.

💡 From The SMSF Coach An SMSF puts you in the driver’s seat, but you still have to steer. If the promoter doesn’t equip you to understand the road rules, they’re not coaching — they’re selling.

🚩 Red Flag 2: No Meaningful Education Is Being Provided The conversation focuses on the benefits of an SMSF but skips the responsibilities, compliance obligations and time commitment.You have not been told that as trustee you are personally responsible for every investment decision, every lodgement, and every breach — even accidental ones.There is no discussion of your existing insurance or how it may be affected when you roll your balance into a new fund.There is no Statement of Advice (SOA) documenting why an SMSF is specifically recommended for your situation.

3. The True Costs of Running an SMSF

Here is the reality the glossy flyers rarely show. The cost of running an SMSF is one of the most consistently misrepresented aspects of the whole conversation — and for many people at lower balances, it is the deciding factor.

What You Should Expect to Pay

Setup costs: Expect $1,400–$2,000 for a proper trust deed, corporate trustee structure, ATO registration, and an initial investment strategy. Cheap setups often cut corners on documentation you will regret later.

Ongoing costs: Based on the latest ATO statistical data, median annual operating expenses run to approximately $4,139–$4,628 per year. This includes auditor fees, accounting, administration, and the supervisory levy.

Many people are shocked to learn the real annual cost often lands between $3,500 and $6,000 once everything is factored in — before investment fees, platform costs, or adviser fees.

Cost Item	Typical Range	Notes
Trust deed & company setup	$500 – $1,500	Higher for corporate trustee structure
Accounting & tax return	$1,200 – $3,000+	Increases with complexity
Independent audit	$300 – $900	Mandatory every year
ATO supervisory levy	$259	Netted in annual return
Financial advice fees	$2,000 – $5,000+	If you engage an adviser
ASIC company annual fee	$67 / year	Corporate trustee only
LRBA / bare trust setup	$1,500 – $3,000+	Required if borrowing for property
Actuarial certificate	$300 – $600	If fund has pension-phase members
Investment & platform costs	Varies widely	Brokerage, managed fund fees, platform access
Insurance review	Varies	Critical — existing cover is often lost on rollover

The old ASIC figure of $13,900 per year was significantly overstated, but the ATO’s median numbers are the ones you should use as your benchmark. If your balance is under $500,000–$750,000, those fixed costs can seriously erode your returns when expressed as a percentage of your balance.

🔑 Before You Proceed: Demand Written Fee Disclosure Total fees expressed in dollars AND as a percentage of your fund balanceA side-by-side comparison between the SMSF and your current super fund, after all fees and taxFull disclosure of any referral fees, commissions or benefits the adviser or their network receivesConfirmation that ATO administrative penalties are your personal liability — not payable from fund assets

🚩 Red Flag 3: Costs Have Not Been Fully and Transparently Disclosed You have only been quoted setup costs, not ongoing annual running costs.No comparison has been provided between the SMSF and your current fund as a percentage of your balance.No one has mentioned that ATO administrative penalties are personally payable by trustees — not from the fund.Insurance implications of rolling out of your current fund have not been raised.

4. The Most Common Mistakes — and What the ATO Does About Them

The ATO regulates more than 630,000 SMSFs and its compliance data makes uncomfortable reading: contraventions increased by 10% in the 2024 income year, and by a further 13% in the first half of the following year. Here are the traps that catch trustees out most often.

Mistakes I See Every Year

🚨 Illegal early access — setting up an SMSF specifically to withdraw funds before you meet a condition of release (generally age 60 with retirement, or age 65 regardless). This is the ATO’s single biggest compliance focus.
Lending to yourself or related parties — or using SMSF assets to support a struggling business. The ATO’s estimate of prohibited loans this year is $231.7 million.
In-house asset breaches — investing more than 5% of the fund’s assets in related-party assets or loans.
Poor record-keeping and valuations — no market-value asset valuations at 30 June, missing trustee minutes, or unsigned trustee declarations.
No investment strategy — or a strategy that does not match your actual investments.
Mixing personal and fund money — paying private bills from the SMSF bank account, or depositing SMSF income into a personal account.
Contribution cap breaches and NALI — non-arm’s length transactions that trigger punitive tax at the highest marginal rate.
Ignoring ATO authority notices — including excess contribution determinations and commutation authorities. Not responding does not make them disappear.
Non-lodgement of annual returns — approximately 85,000 SMSFs had not lodged their 2023 return as at early 2025. Non-lodgement removes your complying status from Super Fund Lookup, cutting off employer contributions and rollovers.

🚩 The Cost of Getting It Wrong Administrative penalties can reach 60 penalty units — currently around $18,780 per breach, per trustee. Loss of complying fund status means the fund’s income is taxed at 45% instead of 15%. Trustee disqualification goes on the public record and applies to all future SMSF roles. These penalties are paid personally by trustees — not from the fund.

Real ATO Cases That Should Make You Think Twice

The ATO does not just issue warnings — it acts. The following court and tribunal decisions illustrate what happens when things go wrong.

📋 ATO Case: NSW Promoter — Federal Court Penalty One of the most striking enforcement actions involved a NSW promoter who set up (or attempted to set up) 35 SMSFs for 68 individuals. She charged fees to help people who were not eligible to access their super to roll it into a new SMSF and withdraw it immediately — often the same day — for home renovations, stamp duty and personal expenses. The Federal Court imposed a $220,000 penalty and banned her from setting up SMSFs for seven years. The individuals involved were also exposed to back-taxes, penalties and trustee disqualification.

📋 ATO Case: Ryan v Deputy Commissioner of Taxation [2015] FCA 1037 The Ryans withdrew nearly $210,000 from their SMSF in 68 transactions over three years, leaving a minimal balance. Withdrawals were treated as loans but were completely undocumented, unsecured, interest-free and had no repayment date. The Federal Court found breaches of the sole purpose test, the prohibition on member loans, and the arm’s length requirement. Each trustee was fined $20,000 ($40,000 combined), disqualified as trustees, and had their remaining benefits rolled into a public fund. They were ordered to pay the ATO’s costs.

📋 ATO Case: Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 The Administrative Appeals Tribunal upheld the disqualification of a trustee following cumulative breaches: lending to a member, sole purpose test violation, illegal early release, missing annual returns, investments not at arm’s length, failure to maintain current asset valuations, and record-keeping failures. Critically, the Tribunal held that vague verbal advice from the fund’s accountant was not a valid defence. Primary responsibility for compliance rests with the trustee — not the adviser.

Other Schemes the ATO Has Shut Down

Property “rebate” arrangements where part of the purchase price is secretly returned to the member personally.
Contrived property development joint ventures that use related parties to divert profits into the SMSF at non-commercial rates, triggering non-arm’s length income (NALI) rules.
High-return crypto or offshore investment apps pushed after an SMSF is established, using the fund balance as the entry ticket.

📊 ATO Enforcement in Numbers — 2024-25 Over 660 SMSF trustees disqualified in 2023-24, largely due to illegal early accessMore than $7 million in administrative penalties and $16 million in additional tax raised$481.8 million estimated in illegal early access and prohibited loans in the most recent year10% increase in contraventions in 2024 income year, with a further 13% rise in early 2025Most common contraventions: member loans (19%), in-house assets (16%), asset separation (13%)

5. My Final Coaching Advice

An SMSF is a genuinely powerful tool — I’ve helped hundreds of families use them successfully for direct property, shares, and real retirement control. But only when it is the right fit and set up properly. The key question is always: who is this arrangement actually serving?

✅ Before You Say Yes: Your Pre-Commitment Checklist Ask yourself honestly: is this person acting in my best interest, or theirs?Demand clear, written disclosure of all fees and ongoing costs — in dollars, not just percentages.Insist on a Statement of Advice (SOA) that documents why an SMSF is recommended for your specific situation.Insist on proper education about your trustee responsibilities before you sign anything.Check every licence on the ASIC Financial Advisers Register and the Tax Practitioners Board.Get a second opinion from an independent SMSF Specialist Adviser who has no connection to the product being recommended.Confirm your existing insurance coverage position before rolling out of your current fund.If anyone promises access to your super now for a non-retirement purpose — stop. That is illegal, and the ATO will find you.

💡 From The SMSF Coach An SMSF done right is one of the best structures available for building retirement wealth. An SMSF done wrong — for the wrong reasons, promoted by the wrong people — can cost you your retirement savings, your trustee status, and years of financial recovery.

📌 Key Takeaways ✅ An SMSF is right for the right person — but the approach, the advice, and the cost disclosure must all check out first.🚨 If someone approached you unsolicited and led with a product, the starting position is one of conflict of interest.💰 Understand the full annual cost (typically $3,500–$6,000+) and compare it to your current fund before deciding.⚠️ The most common contraventions are member loans, in-house asset breaches and non-lodgement — all carry personal penalties.🔑 Always verify licences, demand a written SOA, and get an independent second opinion.📋 The ATO will find non-compliance. Trustees cannot hide behind their accountant or adviser.

Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & Fellow SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153
Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
Suite 4, 1 Dight St., Windsor NSW 2756

Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223

1 Comment

by SMSF Coach - Liam Shorte on April 16, 2026 • Permalink

Posted by SMSF Coach - Liam Shorte on April 16, 2026

https://smsfcoach.com.au/2026/04/16/red-flags-to-watch-out-for-when-considering-and-smsf/

Buying New Zealand Property Through Your SMSF

Make sure to bookmark our Property in an SMSF page for guidance!

SONAS WEALTH | THE SMSF COACH

SMSF TRUSTEE EDUCATION SERIES

What Every Australian SMSF Trustee Must Know Before Crossing the Tasman

By Liam Shorte | Fellow SMSF Specialist Advisor™ | Financial Planner

⚖️ General Advice Disclaimer

This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSF investments in overseas property are complex and the tax laws of two countries apply simultaneously. You should obtain advice from a licensed financial adviser and a specialist international tax adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd corporate authorised representative of Viridian Advisory

Introduction

Australia and New Zealand share more than just the Tasman Sea. We share currency conversations, sporting rivalries, and — for many Australians with family ties, holiday-home dreams, or investment instincts — a temptation to buy property across the ditch. The question I receive more frequently than you might expect is: “Can my SMSF buy a property in New Zealand?”

The short answer is technically yes — but the path is lined with regulatory hurdles, dual-country tax complexity, and structural constraints that make this one of the most challenging overseas investments an SMSF can attempt. It is not a strategy to pursue without specialist advice, and in many situations the practical obstacles mean it simply is not worth the effort.

This article breaks down everything Australian SMSF trustees need to understand before they consider buying a New Zealand property inside their fund.

1. Can an SMSF Legally Own Overseas Property?

First, the baseline: the Superannuation Industry (Supervision) Act 1993 (SIS Act) does not expressly prohibit an SMSF from investing in overseas property. There is no geographic restriction on the asset classes an SMSF may hold, provided every investment decision satisfies the fund’s governing rules and the overarching compliance framework.

In practice, however, several conditions must be satisfied simultaneously for an overseas property purchase to be compliant:

Sole Purpose Test — the acquisition must be made solely to provide retirement benefits to fund members. There can be no present-day benefit to any member or related party.
Investment Strategy — the fund’s documented investment strategy must contemplate overseas property. The trustee must also be able to demonstrate that the holding is consistent with the fund’s risk profile, return objectives, liquidity needs, and diversification requirements.
Trust Deed — the fund’s trust deed must permit investment in overseas or foreign assets. Some older deeds contain geographic restrictions that rule out non-Australian holdings without a deed amendment. Read the Deed!
Arm’s Length Dealings — the property must be purchased from, and (if applicable) leased to, entirely unrelated parties at market rates. No member, relative of a member, or entity connected to a member may acquire a benefit from the property.
Related Party Rules — as with Australian property in an SMSF, residential property cannot be rented to any related party under any circumstances.
In-House Asset Limits — if any arrangement with a related party is involved, the 5% in-house asset limit applies.
Annual Valuation — the fund must obtain an annual market valuation of the property as at 30 June each year, supported by comparative sales evidence in the local market.

🔑 Key ATO Position on Overseas Property

The ATO does not publish a specific prohibition on overseas property. However, it has consistently highlighted that overseas investments create significant compliance risks, including: difficulty verifying tenancy arrangements, currency conversion complexity, title recognition issues, and the inability of the SMSF to be confirmed as the legal owner in jurisdictions that do not recognise the SMSF trust structure.

Notably, some SMSF administration platforms (including major providers) flatly prohibit their clients from holding overseas property, citing the ATO’s concerns about ownership verification and the risk that trustees inadvertently access preserved benefits by purchasing in their personal name with SMSF funds.

2. New Zealand: A Special Case for Australians

New Zealand sits in a favourable position compared to most other countries for Australian SMSF trustees. Unlike the United States (which requires LLC structures), or many European or Asian jurisdictions (which do not recognise foreign trusts as property owners), New Zealand generally permits property to be purchased directly in the name of the SMSF trustee. This means the SMSF can appear on the title as legal owner — a critical requirement for the ATO to accept that the asset belongs to the fund, not to the individual trustee personally.

However, that advantage comes with a significant counterweight: New Zealand’s Overseas Investment Act.

2.1 The Overseas Investment Act — The Biggest Hurdle

In October 2018, the New Zealand Government introduced sweeping restrictions on the purchase of residential property by overseas persons. Under the Overseas Investment Amendment Act 2018, most overseas buyers — including Australian entities — were prohibited from acquiring existing residential land in New Zealand.

An SMSF is a trust structure controlled by Australian-resident trustees. Under the Overseas Investment Act, a trust is treated as an ‘overseas person’ if 25% or more of its trustees are overseas persons. Because an SMSF’s individual trustees are Australian residents, the fund is almost certainly classified as an overseas person for the purposes of New Zealand law.

This has major practical consequences:

Residential property (houses, units, lifestyle blocks classified as residential under the District Valuation Roll) — an SMSF cannot purchase existing residential land in New Zealand without OIO (Overseas Investment Office) consent, and consent is very difficult to obtain for a standard SMSF purchasing an investment property.
Attempting to ‘get around’ the rules via company or trust structures is explicitly prohibited — and heavily penalised. In early 2025, an Auckland solicitor was fined $275,000 and their client was ordered to pay $1.7 million in pecuniary penalties for using a complex structure to circumvent the rules.
Commercial property — the Overseas Investment Act restrictions on residential land do not automatically extend to commercial property, though non-urban land over five hectares and other “sensitive” categories still require OIO consent.
New developments — there is a limited exemption allowing overseas persons to purchase off-the-plan apartments from developers who hold an OIO exemption certificate, provided the buyer does not occupy the apartment. This is the most viable residential pathway for most SMSF investors.
Hotel units — overseas persons can invest in hotel units subject to leaseback arrangements limiting personal use to 30 days per year. Those 30 days would breach the Superannuation Sole Purpose Test and make your fund Non-Complying if used by you or any related party.

📋 2025–26 Update: Investor Visa Amendment

In December 2025, the NZ Government passed amendments allowing overseas holders of Active Investor Plus (AIP), Investor 1, and Investor 2 resident visas to purchase residential property valued at NZ$5 million or more, subject to OIO consent.

This change is unlikely to assist most SMSF investors. It is designed for ultra-high-net-worth individuals with qualifying investor visa status — not for SMSF trustees investing their retirement savings. The NZ$5 million threshold and the visa eligibility requirements place this firmly outside the reach of most Australian SMSF strategies.

2.2 The Bright-Line Test

New Zealand does not have a comprehensive capital gains tax, but it does have the bright-line test — a targeted provision that taxes gains on residential property sold within a prescribed period of acquisition, regardless of the seller’s intention.

As of 1 July 2024, the bright-line period was reduced from 10 years back to two years, simplifying the rule considerably. Key points for SMSF trustees:

Any residential property sold within two years of purchase will have the gain included in taxable income in New Zealand.
The two-year test applies from the date of acquisition to the date of sale — not from the contract date.
Property held for more than two years generally falls outside the bright-line regime (subject to the land being used for the “main home” or other standard exemptions — none of which would apply to an SMSF).
Gains derived from property held under a tax-avoidance scheme, or where a profit-making purpose can be inferred, remain taxable regardless of the holding period.

For an SMSF holding a long-term investment property in New Zealand, the bright-line test is less likely to be triggered — but trustees must track holding periods carefully from a New Zealand tax compliance perspective.

3. The Dual-Country Tax Problem

This is where New Zealand property investment becomes genuinely complicated for an SMSF. The fund must comply with the tax laws of both Australia and New Zealand simultaneously. The two systems do not perfectly align, and managing both creates meaningful ongoing cost and complexity.

3.1 Tax in New Zealand — IRD Obligations

Under New Zealand tax law, income derived from a property situated in New Zealand is taxable in New Zealand, regardless of where the owner is located. This means an SMSF owning a NZ property must:

Register with Inland Revenue (IRD) and obtain an IRD number for the SMSF.
Lodge annual New Zealand tax returns reporting rental income and allowable deductions.
Pay New Zealand income tax on any net rental profit.

The tax rate applied depends on how the SMSF is characterised under New Zealand law:

NZ Classification of the SMSF	Applicable NZ Tax Rate	Notes
Treated as a trust	33%	Default treatment for most SMSFs; applies to net profit distributed/retained
Treated as a unit trust (corporate)	28%	May apply depending on trust deed drafting; lower headline rate but additional complexity when profits are distributed
No net profit after deductions	0%	No tax if expenses eliminate profit; losses can be carried forward

Note: Unlike Australian tax rules, New Zealand does not permit depreciation claims on buildings. This removes a significant deduction that many property investors rely on in Australia and can make the NZ rental income more likely to produce a taxable profit.

3.2 Tax in Australia — ATO Obligations

Despite paying tax in New Zealand, the SMSF must also declare the New Zealand rental income in its Australian tax return. The fund’s trustee reports the gross foreign income, converts it to Australian dollars at the applicable exchange rate, and includes it in the fund’s assessable income.

In Australia:

Rental income in an SMSF is taxed at 15% during the accumulation phase (or 0% if assets are entirely in pension phase supporting an account-based pension).
If the SMSF pays NZ income tax, it can claim a Foreign Income Tax Offset (FITO) in the Australian return to reduce the Australian tax liability by the amount of NZ tax paid.
The FITO cannot exceed the Australian tax applicable to that income — in most cases the NZ rate (28–33%) will exceed the Australian SMSF rate (15%), meaning the Australian tax on that income is effectively reduced to nil, but the excess NZ tax cannot be refunded or offset against other Australian income.

⚠️ Tax Inefficiency Warning

The structural mismatch between New Zealand’s tax rates (28–33%) and the Australian SMSF rate (15%) means the SMSF will typically pay significantly more tax on New Zealand rental income than it would on equivalent Australian rental income.

While the double tax agreement between Australia and New Zealand prevents the income from being taxed twice in full, it does not bring the effective rate down to the Australian SMSF rate. The excess NZ tax is a real economic cost — not a credit that can be used elsewhere.

In the pension phase, where Australian super fund income is taxed at 0%, this problem is even more pronounced: the fund pays NZ tax but receives no Australian tax credit for it.

3.3 The Australia–New Zealand Double Tax Agreement (DTA)

Australia and New Zealand have a long-standing Double Tax Agreement (DTA) that provides a framework for allocating taxing rights between the two countries and preventing outright double taxation. Key provisions relevant to SMSF property investors:

Rental income — New Zealand retains the primary taxing right on rental income from NZ-situated property. Australia taxes the same income but grants a credit (FITO) for NZ tax paid.
Capital gains — the DTA provides that gains from real property situated in New Zealand can be taxed in New Zealand. Australia will also tax the capital gain but applies the FITO offset.
SMSF as trust — the DTA applies to the SMSF in its capacity as an Australian entity. However, the characterisation of the SMSF as a trust under NZ law affects which NZ tax rate applies and how distributions are treated.
Currency conversion — all income and expenses must be converted to AUD for the Australian return. Fluctuations in the AUD/NZD exchange rate add an additional layer of complexity and potential gain or loss.

4. Structural and Compliance Hurdles

4.1 LRBA Borrowing — Possible But Highly Complex

If an SMSF wishes to borrow to purchase the New Zealand property, it must do so through a Limited Recourse Borrowing Arrangement (LRBA) as required by the SIS Act. This requires a bare (custodian) trust to hold the legal title to the property while the SMSF holds the beneficial interest.

In Australia, LRBA structures are well-understood by specialist lenders and legal practitioners. In New Zealand, the position is considerably more complex:

A New Zealand bare trust (or custodian arrangement) must be established before signing a purchase contract — the structure cannot be retrofitted after exchange.
Australian SMSF lenders do not typically lend against New Zealand property. Arranging finance for an SMSF LRBA secured over a NZ property requires specialist cross-border lending knowledge and may require engagement with a NZ-based lender, adding further cost and complexity.
The bare trust arrangement must be recognised under New Zealand property law — not just Australian super law. Legal advice from a NZ property solicitor is essential.
The ATO has strict requirements around LRBA documentation, including signed loan agreements and correct naming conventions. Any structural defect can invalidate the borrowing and create a compliance breach.

Given the additional complexity, most SMSF advisers recommend that if a NZ property acquisition is to proceed, the fund should purchase outright for cash rather than attempting to introduce borrowing.

The other option which is tough to implement us a Related Party Borrowing where the members might arrange funding in their own names against equity in their own properties and then on-lend that to the SMSF. There are very struct rules for such strategies outlined in our article here ATO guidance on related party SMSF loans (LRBAs) – Update 2025-26

4.2 Property Title and Ownership Verification

The ATO requires that overseas property held by an SMSF is clearly owned by the SMSF trustee or Bare Trustee if under an LRBA and that this can be verified each year. The property title in New Zealand must be in the name of the SMSF’s corporate trustee / or individual trustees in their trustee capacity or Bare Trustee when under an LRBA). The trustee must obtain and retain:

A copy of the New Zealand Certificate of Title confirming SMSF trustee /Bare Trustee ownership.
Annual independent valuations of the property expressed in NZD and converted to AUD at the 30 June exchange rate.
Evidence of arm’s length tenancy arrangements, including tenancy agreements and rent receipts.
Receipts for all property-related expenses incurred in New Zealand.

4.3 Currency Conversion and Record-Keeping

All NZ income, expenses, and asset valuations must be converted to AUD for Australian fund reporting purposes. Trustees must:

Apply a consistent, defensible exchange rate methodology (typically the spot rate on the date of each transaction, or the 30 June rate for valuation purposes).
Maintain records of every NZ transaction in both NZD and AUD.
Ensure the fund’s accountant and auditor have access to NZ tax returns, IRD correspondence, and NZ property management records.
Be aware that exchange rate movements can produce AUD-denominated gains or losses on the asset valuation that are distinct from any NZD-denominated capital movement in the NZ property market.

4.4 Annual Audit and Compliance Costs

Owning a NZ property inside an SMSF materially increases the fund’s annual compliance cost. Trustees should budget for:

Cost Component	Typical Range (AUD)	Frequency
NZ property management fees	$1,500 – $3,500	Annual
NZ tax return preparation (IRD)	$1,500 – $3,000	Annual
NZ independent property valuation	$500 – $1,200	Annual (30 June)
Australian SMSF accounts & audit (uplift for overseas asset)	$1,250 – $3,500	Annual
Legal/structuring costs (initial setup)	$3,000 – $8,000+	One-off
NZ solicitor fees (conveyancing)	$2,000 – $4,000	One-off
Currency conversion transaction costs	Variable	Ongoing

These costs must be weighed against the investment return. For a smaller SMSF, the compliance overhead may consume a disproportionate share of the fund’s rental income.

5. Pros and Cons — The Balanced Assessment

✅ Potential Benefits	⚠️ Key Risks & Drawbacks
Geographic diversification — exposure to a different property market can reduce concentration risk in an all-Australian portfolio.	Overseas Investment Act restrictions — an SMSF is almost certainly classified as an ‘overseas person’ and cannot purchase most existing NZ residential property without OIO consent.
NZ title recognition — NZ generally recognises SMSF trustee ownership on title, avoiding the structural complexity of US LLC or other wrapper arrangements.	NZ tax rates exceed SMSF rates — the SMSF may pay 28–33% NZ tax on rental income vs 15% in Australia, with no ability to recover the excess via FITO.
No NZ CGT (generally) — NZ does not have a comprehensive capital gains tax; gains are typically only taxable under the bright-line rule (2-year period from 1 July 2024) or where profit-making intent exists.	Pension phase tax trap — fund assets in pension phase pay 0% Australian tax; NZ still charges 28–33% on rental income with no Australian offset available.
NZ depreciation not permitted, but deductions available — interest, rates, insurance, management fees, and repairs remain deductible against NZ rental income.	LRBA is extremely complex — cross-border LRBA structures are rarely used in practice; cash purchase is the more practical option, but requires greater fund liquidity.
Long-term hold may minimise NZ tax — if the property is held for more than 2 years, NZ capital gains are typically not taxable, and a long-term hold in pension phase may minimise the effective Australian CGT rate.	No building depreciation in NZ — deductions are more limited than under Australian tax rules, increasing the likelihood of a taxable NZ profit.
Trans-Tasman relationship — the AUS–NZ DTA reduces the risk of full double taxation on income.	Ongoing dual compliance cost — two tax returns, NZ IRD registration, NZ valuations, NZ property management, and additional Australian audit costs materially reduce net returns.
Potentially attractive yields — certain NZ regional markets offer rental yields that compare favourably with comparable Australian markets.	Currency risk — AUD/NZD movements affect both the reported value of the asset and the AUD equivalent of NZ rental income.
	Liquidity risk — property is illiquid; an SMSF that begins paying member benefits may struggle to meet cash flow needs if a significant portion of assets is locked in NZ real estate.
	Auditor scrutiny — overseas property attracts heightened scrutiny from SMSF auditors and the ATO, particularly in verifying tenancy arrangements and market valuations.

6. Viable Pathways — What Actually Works

Given the restrictions under the Overseas Investment Act, the most viable options for SMSF investors seeking New Zealand property exposure are:

6.1 Off-the-Plan Apartments — OIO Exemption Certificate Pathway

Developers of large multi-unit residential developments can apply to the Overseas Investment Office for an exemption certificate that permits them to sell up to 60% of the units to overseas persons. This is the most commonly used pathway for Australian investors (SMSF or otherwise) to hold NZ residential property.

The investor cannot occupy the apartment — it must be held as a pure investment.
The apartment must be purchased off the plans from a developer holding a current exemption certificate; the list of eligible developments is published on the OIO website.
All SMSF compliance requirements (sole purpose test, investment strategy, arm’s length tenancy) still apply.
NZ and Australian dual tax filing obligations remain in force.

6.2 Commercial Property

Commercial property (offices, retail, industrial, warehouses) is not classified as ‘residential land’ under the Overseas Investment Act and is generally available for purchase by overseas persons without the same restrictions. This makes commercial property a more accessible option for SMSF investors in New Zealand.

Key considerations for NZ commercial property in an SMSF:

The business real property rules under the SIS Act that permit a related party to lease commercial property from an SMSF (at arm’s length, commercial rates) apply to Australian business real property. There is no equivalent provision that extends this treatment to foreign commercial property — the related party prohibition still applies.
NZ commercial yields can be attractive, particularly in industrial and logistics sectors.
All dual-tax compliance obligations remain in full force.

6.3 NZ-Listed Property Funds and REITs

Rather than direct NZ property ownership, many SMSF trustees achieve New Zealand and broader international property exposure through:

NZX-listed property trusts (such as Precinct Properties, Goodman Property Trust, or Investore Property) — these are traded securities, not real property, and do not trigger the Overseas Investment Act.
Australian-listed funds with NZ property exposure — several ASX-listed REITs and unlisted property funds hold diversified portfolios that include New Zealand assets.
These indirect structures provide NZ property market exposure without the regulatory complexity, dual-country tax filing obligations, or illiquidity associated with direct ownership.

For most SMSF trustees, indirect exposure via listed funds is the more practical, cost-effective, and compliant pathway to New Zealand property investment.

7. Pre-Investment Checklist

If, after considering all of the above, you remain committed to pursuing direct NZ property ownership inside your SMSF, work through each of the following before executing:

#	Checklist Item	Status
1	Trust deed reviewed and permits overseas property investment	☐
2	Investment strategy updated to include overseas property and foreign currency exposure	☐
3	Australian licensed financial adviser has confirmed the investment is in the fund’s best interests (SIS s.52B)	☐
4	NZ specialist tax adviser engaged — IRD registration understood	☐
5	OIO classification confirmed — fund is or is not an ‘overseas person’	☐
6	Property identified as eligible for SMSF purchase (commercial, OIO-exempt development, or other permitted category)	☐
7	Bare trust structure established in NZ before signing any contract (if LRBA is intended)	☐
8	Title will be registered in name of SMSF corporate trustee (confirmed with NZ conveyancer)	☐
9	No related party will occupy, use, or lease the property	☐
10	Annual compliance budget modelled — costs confirmed as viable relative to expected yield	☐
11	Currency conversion policy documented for fund record-keeping	☐
12	Property management arrangement confirmed as arm’s length	☐
13	SMSF auditor briefed on overseas asset — additional requirements confirmed	☐
14	Tax inefficiency of NZ rates vs SMSF rates modelled and accepted	☐
15	Liquidity analysis completed — fund can meet all obligations without forced sale	☐

8. My View as The SMSF Coach

I have seen the appeal of New Zealand property — the proximity, the familiarity, the lifestyle quality of Queenstown, Auckland’s waterfront suburbs, or the Bay of Islands. But from a pure SMSF strategy perspective, the numbers rarely stack up.

The combination of the Overseas Investment Act (which blocks most standard residential property purchases by SMSF entities), the NZ tax rate mismatch (which erodes the main advantage of the SMSF tax environment), and the ongoing dual-country compliance burden (which adds thousands of dollars to your annual fund costs) creates a set of headwinds that most investment returns cannot overcome.

If your goal is genuine property market exposure in New Zealand, an NZX-listed property trust or a diversified Australian REIT with trans-Tasman holdings is almost certainly a more cost-effective and compliant approach.

If you have a specific, well-considered reason to pursue direct NZ property — a unique commercial property opportunity, an off-the-plan development with OIO exemption, or a scenario where the fund has the scale to absorb the compliance overhead — then go in with eyes open, engage specialist advisers in both jurisdictions, and build the dual-compliance model before you sign anything.

The Tasman is not as wide as it used to be. But the regulatory and tax gap between Australian super rules and New Zealand property law is still significant enough to give most SMSF trustees pause.

📌 Key Takeaways

✅ SMSFs can legally own NZ property if all SIS Act and investment strategy requirements are met, and if the property is held in the name of the SMSF trustee.

🚫 The Overseas Investment Act 2018 (as amended) treats most SMSFs as ‘overseas persons’ and prohibits the purchase of existing NZ residential land in most circumstances.

💰 NZ rental income is taxed in NZ at 28–33%, which exceeds the 15% SMSF rate. Foreign income tax offset relief partially mitigates but does not eliminate this differential.

⚠️ In pension phase, the problem is worse: 0% Australian tax means no FITO relief is available, making the NZ tax an unrecoverable cost.

📋 Off-the-plan apartments (from OIO-exempt developers) and NZ commercial property are the most viable direct investment pathways.

📊 NZX-listed property trusts and Australian REITs with NZ exposure are the most practical route for most SMSF investors seeking NZ property market access.

💡 Always obtain specialist advice from a licensed SMSF adviser and a NZ international tax specialist before proceeding.

About the Author

Liam Shorte is the Managing Director of Sonas Wealth leading a team of 3 SMSF Specialist Advisors™, and is known professionally as The SMSF Coach. He is a Financial Planner and Fellow SMSF Specialist Advisor™, multi-award-winning SMSF Adviser of the Year, and a member of ASIC’s Financial Advisers Consultative Panel. Liam provides specialist SMSF advice to trustees across Australia and makes regular media appearances on ausbiz TV and other media and podcasts covering SMSF and retirement topics.

Website: http://www.sonaswealth.com.au

Blog: http://www.smsfcoach.com.au | LinkedIn: linkedin.com/in/liamshorte

Always make sure that you’re your strategy complies with relevant superannuation and tax regulations before implementation

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & Fellow SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153
Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
Suite 4, 1 Dight St., Windsor NSW 2756

Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223

Buying a Property for your SMSF – Why Use a Buyers Agent

I openly admit that I am not an expert in choosing properties (indeed my own personal history with property investing is dismal to say the least but improving!). I work on the structure and strategy with my clients and recommend they do their own in-depth property research or lately I have been recommending people use a Buyer’s Agent if they are inexperienced or lack confidence, time or want help and advice but need to know that person is working 100% on their behalf.

That brings me to the title of this blog and I asked a local Buyer’s Agent here in the Hills District of Sydney who operates countrywide to explain the role and benefits of a Buyer’s Agent. So here is our first Guest Post from Jay Anderson of Jay Anderson – Property Strategist | Buyers Agent | Property Advisor

“Empowering clients to make the right choices!” –

Jay Anderson

Searching for a home to live in or investing in property, could at best be an intimidating experience. You wouldn’t invest half a million dollars in a business without a strategy or without a business plan, so why would you invest that, or even more, into a property without a plan or strategy? With a process of consultation we determine what clients really need to reach their own personal property goals. Through step by step professional guidance we determine a strategy suitable to our clients needs and finally implement that strategy, finding the home or investment property that credibly suits the designed and agreed personal property strategy.

Why use us as your Property Investment Advisor and Buyers Agent:

We work exclusively for the Property Investor/Home Buyer. We have no alliances with any real estate agencies, selling agents or property developers and we fight for our buyers! There’s a clear distinction between our services and those of selling agents. We don’t sell property, have no ‘stock lists’ and as exclusive buyer’s agent, we only act for the buyer not the seller.
We give our clients guidance throughout the entire purchasing process. We provide insight on the market conditions and the best areas to buy/invest in based on their individual needs and property ambitions, empowering our clients to make the right choice and purchase their ideal property at the right price.
You don’t have to rich and famous to use our services. We can assist you whatever your budget is. We will save you money (we use great negotiation techniques), time (we do the running around for you, we source properties on and off market, attend inspections, provide photos/videos and will advise you what to offer) and alleviate the stress that often accompaniesa property purchase.
We save our clients heartache. No more the need to try to figure out if my friends ‘advice’ at the BBQ to invest in that ‘hot’ area is credible or not! Believe it or not, but 80% of mistakes that’s made in investing in real estate are made at the buying stage. “You don’t know what you don’t know” and whilst you “can” do it yourself, there is so much at stake.
We are a fee for service organisation and do not accept any sales commission or incentives from vendors, builders, developers or third parties. We are truly independent and represent the buyer only.
We will only refer our clients to service providers that have their best interest at heart. We have created a safe environment for property buyers with like-minded people all focused on: ‘What’s in the best interest of my client’.
We carry appropriate and adequate Professional Indemnity insurance for the services we provide and are a proud member of the Property Investment Professionals of Australia (PIPA), Property Investors Council Australia (PICA), a Qualified Property Investment Advisor (QPIA) and a licensed Real Estate Agent (LREA)

Why not build your property portfolio on good foundations? Make your next property acquisition an informed one.

For more information please contact:

Jay Anderson

Property Strategist, Buyers Agent, Property Advisor

QPIA®, LREA, Cert Prop. Serv, Dip. Bus Mgmt, Dip. Hos Mgmt, CHRM

jay@jayanderson.com.au | Phone: 0410 746 200

https://www.jayanderson.com.au/

The SMSF Coach or Verante Financial Planning do not request or receive any commissions or referral fees from recommending services like Jay’s, we just want the best professional advice for our clients.

For more detail on Investing in Property through an SMSF check out our previous articles

Property through super in a SMSF – Part 1: Background

Property through super in a SMSF – Part 2: The Process

Property through super in a SMSF – Part 3: 20 most common mistakes

SMSF Borrowing: What Can I Do With An Investment Property Within The Rules.

Can I borrow to buy a house and land package off the plan in my SMSF?

Keep updated by putting an email address in on the left hand column and pressing the “Sign me up!” button. Happy to take comments in the section below.

Bye for now.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 Norwest NSW 2153

40/8 Victoria Ave. Castle Hill NSW 2154

Suite 4, 1 Dight St, Windsor NSw 2756

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

3 Comments

by SMSF Coach - Liam Shorte on January 20, 2022 • Permalink

Posted in Borrowing, Investment Strategies, Property

Posted by SMSF Coach - Liam Shorte on January 20, 2022

https://smsfcoach.com.au/2022/01/20/buying-a-property-for-your-smsf-why-use-a-buyers-agent/

Why you should make loans to your children not gift them money

I am always on the look out for interesting tips for clients and while this may not necessarily be SMSF related, many of my readers are also wish to help their children with money for house deposits, education funds or other ad-hoc expenses . I read the blogs from Dr. Brett Davies at Legal Consolidated regularly and found them very informative and excellent guidance so, with his permission, I am “paying it forward” again!

In his blog Parents making loans to children he discusses why smart parents use loan agreements to protect the family wealth. Here is the detailed article and video he prepared.

Parents making loans to children

Sad parents

Mum and dad give their daughter, Joanne $400,000 to buy a house. She then marries Ken. Ten years later Joanne and Ken divorce. The house is still worth $400,000. It is the only asset of the marriage. The Family Court awards $200,000 to Ken. The Family Court is not interested that the money was a gift from Joanne’s mum and dad. Instead, loans to children are safer.

Smart parents

Mum and dad lend $400,000 to their daughter, Joanne. Joanne signs a legally prepared Loan Agreement built on Legal Consolidated’s website. Joanne purchases a house with the money. She marries Ken. Ten years later they divorce. The house is still worth $400,000. It is the only asset. The Family Court is shown the Loan Agreement. The Family Court orders that Ken gets nothing. This is because the assets of the marriage are nil.

To protect your loan build a legally prepared Loan Agreement – on a law firm’s website. Homemade loan agreements may not work. They carry less weight with the Family Court and Bankruptcy Court. Why take the risk?

But I love my children

There is nothing wrong with helping our children financially. It could be for their first car, grandchildren school fees, a holiday or a property. Today it is becoming more popular to help out our children with a home deposit, but simply giving away the money has real risks. It is important to protect the money in case:

they divorce
go bankrupt
suffer from drugs
suffer a mental condition
stop loving you – ‘King Lear’ offers his daughters his Kingdom for the return of their love, but after they promptly abandon him
you run out of money yourself, in your old age

Documenting loans to children

Never ‘give’ your children money. Always ‘lend’ them money ‘payable on demand’. Get it back if something goes wrong. Treat yourself like you are a bank, and your children are taking out a loan.

Creating a loan agreement not only protects your own interests but also benefits the child as you can decide in the future to forgive the loan while you are alive or in your Will.

With loans to children, never rely on a verbal agreement. Press the Build button and build a Loan Agreement on our website. We are Australia’s only law firm website providing legal documents online. It puts everything in writing with rules about the loan.

Any tax issues?

There are no tax issues. The interest rate for the loan is ‘as advised by the Lender’. Therefore, while the interest rate is zero you have no income tax issues. If the child separates you can increase the interest rate to draw more money out of the failed relationship. There is less money for the Family Court to give to your ex-in-law.

A loan isn’t always for property and the grandchildren’s school fees. You can also fund the children’s Superannuation fund. Speak to your Financial Planner and Accountant.

At different times, it is common to benefit one child over another with money. If you benefit one child over another then it is adjusted automatically at the time of your death. Say you lend one child $500k and the other child $300k then that is adjusted at your death. So it is all fair again.

When making loans to children:

talk with all your children together about the loans
never gift children money – only loan them money (this protects both you and them).

don’t rely on home-made loans or IOUs – build a Loan Agreement

Can I just do a Loan Agreement on the back of an envelope?

In the movies, IOUs are often handwritten on a piece of paper. Sometimes instead of a Loan Agreement, someone does a ‘minute’. Both approaches fail. In Rowntree v FCT [2018] FCA 182 shows the additional care required to document even simple related-party transactions, such as loans. In this case, the taxpayer, a practising NSW lawyer, claimed he borrowed over $4m from his group of private companies. The Court said:

‘Mr Rowntree has not deliberately chosen to ignore the law. His evidence presented to the Tribunal suggests that he genuinely believed that there were arguments to support his view that a loan was in existence.’

He failed. Only a legally prepared Loan Agreement satisfies the ATO, Bankruptcy Courts and Family Court.

Cheeky son refuses to pay Dad back

In Berghan v Berghan [2017] QCA 236 the son borrows money from his Queensland aged father. The son refuses to pay it back.

The son, in the first court case, successfully argues that the monies were given to him as a gift. However, the Court of Appeal held that the amounts were loans.

Portrait of an ungrateful child

The son’s company suffers financial stress. The son gets $98k from this Dad. The boy continues to borrow more money from dad.

Later, the son borrows his father’s credit card. The boy clocks up another $13k of debt.

The First court case

His Honour said that Dad failed to prove a legal binding agreement. There was no paperwork. There was no written loan agreement. It was a gift.

The Judge said:

The son promised to look after his Dad in old age. But that was just a moral obligation.
Dad is making the payments to the son, for the benefit of the company, was simply discharging his parental obligations. This is because their daughter was an employee at the son’s company. The money was therefore of a charitable nature. Dad was protecting the son’s company so his daughter would keep her job.
Dad allowed his boy to use the credit card when the boy was injured and impecunious. These circumstances are charitable.

Good sense prevails in the Appeal

The Court of Appeal had a better sense:

The lengthy period it took Dad to make a demand for the money does not count against his assertion that a breach of contract existed. The Court held post-contractual conduct is not taken into account when interpreting the terms of a contract.
The motive Dad had in transferring his son the money, be it “charitable” or otherwise, was not relevant.

The Court set aside the decision of the District Court. The Court said that the monies were paid with an understanding that they would be repaid. This was an “inescapable conclusion”. The transactions were a contract of loan. The Court gave judgement in favour of Dad of $286,000 including interest.

This is another example of elder abuse. The decision shows the perils of not signing a loan agreement. Going to Court – twice in this instance – was expensive and exhausting for the aging father.

What happens if your child has a partner and buys a home?

What if your child has a partner? The loan agreement may change depending on whose name the home is purchased under. Best that your child signs the Loan Agreement and buys the home just in their name. This binds your child alone, and the partner has no say in the matter. What if the partner objects? It is important to stay firm and explain it is ‘to protect your interests, it is nothing personal’. This protects yourself and your child, if the relationship with the partner does not end up ‘happily ever after’.

What happens if the home is purchased in both your child and their partner’s name? Then both your child and their partner sign the Loan Agreement. Our Loan Agreements allows the loan to be lodged as a caveat. Or our Loan Agreement can be registered as a second mortgage – but the bank is notified. So caveats are more common.

Visit Parents making loans to children to start the process or seek legal advice form your own Solicitor.

We are in no way connected to Legal Consolidated, we do not receive referral fees or commissions of any sort from them. This is purely general advice from a trusted source and you should seek legal advice form them or your own solicitor before making any decision.

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! Make 2019 the year to get organised or it will be 2029 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

I was on the hunt for some interesting insights in to the current market and using momentum or contrarian strategies for clients . Lawrence Lam of Lumenary Investment Management writes in this guest blog that it not always a case of either or but a combination.

At a recent lunch with another fund manager I found myself engaged in a discussion about the state of the current market.

‘From your perspective, are you seeing many good opportunities?’ I asked.

‘I’m seeing good companies, but prices are toppy,’ he said, wincing before continuing. ‘More than I’d like to pay. But we’ve recently deployed more anyway.’ He shrugged his shoulders, ‘Momentum in the market is strong – the fed is decreasing rates. Despite the high prices, we wouldn’t want to miss this momentum.’

I nodded as we both acknowledged this unique investment environment. Decreasing rates, high stock valuations, yet stock prices that have continued to climb steadily.

Walking back to my office I reflected. ‘Is now a good time to be a momentum investor? Or is it time to go against the herd?’

Harness the power of momentum or be a contrarian?

It’s a dichotomy faced by all investors, but it isn’t a binary decision. Your portfolio can be made up of both momentum and contrarian investments. So the question becomes: how can we determine the optimal proportion of holdings between momentum and contrarian?

Are you seeing the full picture?

Momentum investors have much to gain if the wave of popularity is caught early. However, be the last one to the party and you will be left with all the cleaning up. The real question is: how much more of the wave is left to catch? The solution to this contradiction can be found by understanding the long-term context.

The ratio of a company’s stock price-to-intrinsic value tells us how much the market is willing to pay for the company. It’s a useful measurement of sentiment at one point in time. There’s a clear link between sentiment (the stock price) versus fundamental value (intrinsic value).

But it doesn’t give us the full picture. To understand this contradiction, we need to see how sentiment for the stock has changed over a significant period of time – over entire market cycles. Extend the ratio of stock price-to-intrinsic value over a 15 year horizon and you’ll now gain a multi-dimensional view of just how manic-depressive Mr Market is.

As an example, here is the change in sentiment for the founder-led aerospace electronics company HEICO Corporation.

During the GFC, Mr Market was very pessimistic. He was only willing to pay 1.8x the intrinsic value of HEICO. But alas Mr Market is as fickle as they come. More recently, he has been very bullish. He’s willing to pay 4.8x intrinsic value. A large proportion of the returns have been driven solely by the company’s increasing popularity with investors.

Now we have a better view of the context. Understanding the stock price and intrinsic value over a long time period equips us to answer the following question…

Is the party getting started or is it about to end?

There’s an interesting observation about parties. When do they end?

Answer? They end when the alcohol runs out. Rarely do they end immediately though. Good times roll on for a while longer before the sudden realisation hits the sobering crowd.

So when is the worst time to join a party?

As you’re pondering the answer, here is another view of HEICO to illustrate the point.

Although the intrinsic value of HEICO’s business has consistently increased over time, the increase in it’s price has far outpaced the fundamental growth of the company. HEICO is a solid and growing company, but its impressive performance has been driven primarily by sentiment and price, rather than actual business value. The price-to-intrinsic value ratio shows this.

Risk is heightened when a company’s stock price outpaces its intrinsic value for significant periods of time. As crazy as Mr Market is, one thing is certain – his enthusiasm and pessimism never last forever. The gravitational pull of a company’s fundamental value is unrelenting.

The best time to join a party is when there’s plenty of alcohol and not too many people. But tread carefully when there crowd is pumping and booze is running low. Whilst the fun may continue for a while longer yet, the risk of an abrupt ending is heightened.

A ‘reasonable’ price

Pure momentum investing focuses predominantly on the historical price movement and pays little attention to actual fundamental value. But if you want to understand if a trend is justified, the fundamentals are critical.

Armed with this insight, we can make a judgement call on what a ‘reasonable’ price would be and whether we should join the party. Some sectors run hot. Today, technology is a classic example. But a strong trend shouldn’t be a deterrent. Prices may seem exorbitant, but in the context of the company’s historical sentiment, sometimes the high price is worth paying. What may seem expensive on an absolute basis may be reasonable in the context of history. For example, the price-to-intrinsic value of Facebook was high on an absolute basis in late 2018, but was reasonable when compared to its history. It has proven to be a good entry point so far.

But there’s more for enterprising investors – the picture is still not yet complete.

A deeper level of analysis

Competition

You may have noticed my focus on individual company analysis rather than broad-based economic generalisations. We are buying slices of companies after all. Whilst we can understand the sentiment in our target company, it is also important to have context across other comparable companies. The same price-to-intrinsic value historical ratio across a few companies will give us a sense of sentiment across the sector. We’ll be able to see if there are any other reasonably priced companies.

Potential growth

So far the focus has been on gaining historical context. Sometimes the momentum is justified if there are tangible growth prospects. In other words, intrinsic value is expected to grow significantly with price. In those situations, the trend may be your friend. For those that heard me speak at the AIA National Conference, I outlined my framework to assess the potential growth of a company.

Intrinsic value

Speculators focus on stock price movements only. Investors focus on the underlying true worth of a company.

As Warren Buffett says “Price is what you pay, value is what you get”.

The fundamentals of a company’s value is reflected in its Intrinsic value. Importantly, in determining a company’s intrinsic value, I’ve stripped out accounting distortions that may hide a company’s true worth.

Closing remarks

Is the trend your friend?

If the fundamentals of a company are sound and the price is reasonable in the context of its history and other competitors, then the trend may indeed be an ally. Ride the wave and enjoy the party.

Price and intrinsic value may deviate for many years but price will eventually move towards intrinsic value over the long-term. Seeing the full picture is key to capturing sensible opportunities. In every party, everyone sobers eventually.

Happy compounding.

Note:

Stocks mentioned have been used as examples only. They are not recommendations to buy or sell.

About me

Lawrence Lam is the Managing Director & Founder of Lumenary, a fund that uncovers the best founder-led companies in the world. We invest in unique, overlooked companies in markets and industries beyond most managers’ reach. We are a different type of global fund – for more articles and information about us, visit www.lumenaryinvest.com

The SMSF Coach is in no way connected to Lawrence Lam of Lumenary Investment Management and we do not receive referral fees or commissions of any sort from them. This is purely general advice and market commentary from a trusted source and you should seek personalised financial advice before making any investment decision.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98993693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153

U40, 8 Victoria Ave. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 434 605 488 042, AFSL 476223

6 Comments

by SMSF Coach - Liam Shorte on September 4, 2019 • Permalink

Posted in Education costs, Investor Education, Loans

Tagged Baulkham Hills, Castle Hill, Dural, Gifts to Children, Hawkesbury, House Deposit, Lending to Family, Loan Contracts, loans to children, Loans to family, PRivate Loan, Private Loan Agreement, valuations, Windsor

Posted by SMSF Coach - Liam Shorte on September 4, 2019

https://smsfcoach.com.au/2019/09/04/why-you-should-make-loans-to-your-children-not-gift-them-money/

Beware of Property One-Stop-Shops when buying for your SMSF

ASIC and the ATO have on numerous occasions highlighted the dangers of buying property through one organisation that organises all steps in the process. they call them “one-stop-shops”. This is where you get all or most of the following services for a new SMSF from one associated group:

Real Estate recommendation for a specific property and/or manage the property rental
Property Adviser who does initial training or introduction to property investing, then pointing you to associated service providers
Accounting and Audit to set up and do the admin for your new SMSF
Financial Planner to prepare a Statement of Advice on the suitability, risks, costs, benefits of and SMSF and benefits lost in moving to an SMSF
Conveyancer to process the property transaction
Mortgage Broker to sort out the finance

One of the issues is that they may not be very transparent about how they’re interconnected. Always ask each party what their fees are and do they pay any form of remuneration, fees, referral commission charges etc to any other party.

In its recent Report 575 – SMSFs: Improving the quality of advice and member experiences they were very specific about their concerns. From the report:

SMSF property one-stop shops

397 – “The use of property one-stop shops is an area of significant concern. These models tend to promote the purchase of geared residential property through an SMSF, arranged by groups of related real estate agents, developers, mortgage brokers, accountants and financial advisers.

398 – The one-stop shop model creates inherent conflicts of interest that may affect the advice given to a client to set up an SMSF, make subsequent investments, or use specific services. These conflicts can arise from direct or indirect commissions, referral payment arrangements, representative remuneration structures or even management pressures.

399 – We have previously achieved enforcement outcomes against operators of property one-stop shops involving SMSFs—such as Park Trent Properties
Group Limited and Anne Street Partners. In light of the findings from this project, we will continue to conduct surveillance on these property one-stop
shop operators and take enforcement action where appropriate.

400 – We will also work with other regulators, including the ATO and APRA, to develop a holistic approach to addressing problems that we are seeing with property one-stop shops.”

Despite these warnings ASIC’s further research has shown that people still value the idea of a One-stop-shop for their advice needs when buying property. I assume this is because people just like simplicity and want someone to manage the process for them. Well you can have that simplicity without the inherent dangers involved by choosing to work with professionals who charge a fee for service for their advice and do not accept commission or any remuneration from other parties or fully disclosed like such as with a Mortgage Broker who is remunerated by the lender.

So when thinking about a property for your Self Managed Superannuation Fund or any asset really, you should always ensure that at least some of the providers of services are working in your Best Interests. Financial Planners are obligated by law to act in their Client’s Best Interest but we all know that money , fees or commissions may blur the lines. So don’t be afraid to ask questions about:

who is providing you the advice
how are they being paid,
Are they receiving any other form of remuneration
how are they connected to the other service providers

It is important for your professional service providers to work on strategies on your behalf but that does not mean they need to be paying fees to each other which ultimately increases your costs. Let me explain how I work with other professional service providers for example:

I do not provide specific advice on “the property” for you and stick to my area of expertise; whether an SMSF is right for you and how you can use it to achieve your goals. I charge you a specific fee for this advice which is outlined in a Letter of Engagement before you commit to my service. If you want ongoing advice, again I explain it up front in an Ongoing Service Agreement.
I provide you with a range of SMSF Admin and Audit solutions from other providers that will suit your needs. I have 4-5 options to ensure you can choose what suits you with our guidance and often that may be to use your current Accountant. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients
If people want help choosing a property, again I have a number of trusted Buyer’s Agents throughout the country that are on hand to provide advice. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.
If you need assistance in getting finance arranged then I refer you to a number of brokers who have experience and expert knowledge in SMSF Lending. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.
Legal Advice/Conveyancing – If you do not have a current lawyer or they do not have SMSF experience then I refer clients to a number of lawyers / conveyancers with specific experience and expertise in the rules around SMSFs for property transactions, powers of attorney and estate planning.
I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.

Can you say the same about your service providers?

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153
Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
Suite 4, 1 Dight St., Windsor NSW 2756

Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223

1 Comment

by SMSF Coach - Liam Shorte on January 14, 2019 • Permalink

Posted in Borrowing, Property, Scam Alert, SMSF Management

Posted by SMSF Coach - Liam Shorte on January 14, 2019

https://smsfcoach.com.au/2019/01/14/beware-of-property-one-stop-shops-when-buying-for-your-smsf/

Budget matters relevant to SMSF Trustees

Sigh of relief!

Thankfully after the reams of changes to superannuation in last years budget that we are still trying to negotiate the through the implementation minefield, the government have left SMSFs and Superannuation largely untouched this year. As the SMSF Association have said “Stability and confidence for superannuation is the good news coming out of the 2017-18 Federal Budget.” However there are a few issues and gladly opportunities you need to be aware of.

Contributing the proceeds of downsizing your home to superannuation (or just taking advantage of strategy if moving house)

Tip: If you’re over 65 self funded retiree and your marginal tax rate is more than 15% then strategy may be useful. May also help avoid the Medicare levy increase in 2 years time.

It is proposed that from 1 July 2018, people aged 65 and over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to the existing contribution caps.

Features associated with this measure include:

The property must have been the principal place of residence for a minimum of 10 years
Both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation through the downsizing cap
Amounts will count towards the transfer balance cap when used to commence an income stream
Contributions will be subject to social security means testing when added to a superannuation account

Contribution eligibility requirements, such as the work test and restrictions on contributions from age 75 will not apply to these contributions. The requirement to have a total superannuation balance of less than $1.6 million to be eligible to contribute will also not apply.

Social security changes

Pensioners who lost their Pensioner Concession Card entitlement due to the assets test changes on 1 January 2017 will have their card reinstated. This card provides access to a wider range of concessions than those available with the Health Care Card, such as subsidised hearing services. Pensioner Concession Cards will be automatically reissued over time with an ongoing income and assets test exemption.

As of 1 July 2018, there will be stricter residence requirements for the age pension and disability support pension. From that date, pension recipients will need to have at least 15 years’ residence in Australia or 10 years’ continuous residence with certain restrictions.

First home super saver scheme – talk to us about how you can use this to help your children or grandchildren

From 1 July 2017 individuals will be able to make voluntary contributions to superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn for the purpose of purchasing a first home. Both voluntary concessional and non-concessional contributions will qualify.

These contributions (less tax on concessional contributions) along with deemed earnings can be withdrawn for a deposit from 1 July 2018. When withdrawn, the taxable portion will be included in assessable income and will receive a 30 per cent offset.

Features associated with this measure include:

Contributions will count towards existing concessional and non-concessional contribution caps
Earnings will be calculated based on the 90 day Bank Bill rate plus three percentage points.
The ATO will administer this scheme, calculate the amount that can be released and provide release instructions to superannuation funds.
The amount withdrawn (including the taxable component) will not flow through to income tests used for tax and social security purposes, such as for the calculation of HECS/HELP repayments, family tax benefit or child care benefit.

Example of how to use this strategy: Get your child or grandchild to salary sacrifice up to $15,000 each year until they max out the $30,00 limit and let them live at home or support their living costs to ensure they can still make ends meet. This way you promote a savings culture and they get a tax incentive at the same time. Boost the savings by matching what they put in to the super account dollar for dollar in to an High Interest Savings account.

If you are giving money to children then teach them a valuable life lesson on regular saving at the same time…best gift you can give to them.

Bank levy may hit dividends or term deposit rates

The Government will introduce a major bank levy which will raise $6.2 billion in the next four years. This will either be passed on to customers with lower rates on deposits or higher mortgage rates or to shareholders in the form of lower dividends. Another good reason to review your exposure to the large banks as the market cycle changes.

PROPERTY INVESTORS

Integrity of limited recourse borrowing arrangements

The Government is proceeding with amendments to the transfer balance cap and total superannuation balance rules for limited recourse borrowing arrangements (LRBAs). The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance for all new LRBAs once this legislation is passed.

Integrity of non-arm’s length arrangements

The Government will amend the non-arm’s length income rules to prevent member’s using related party transactions on non-commercial terms to increase superannuation savings by including expenses that would normally apply in a commercial transaction.

Disallow certain deductions for residential rental property

From 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.

Investors will not be prevented from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

Also from 1 July 2017, plant and equipment depreciation deductions will be limited to outlays actually incurred by the SMSF in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans. Here’s the list of residential #property plant and equipment items that will go in crack down on negative gearing deductions. Here’s the list of residential property plant and equipment items that will go in crack down on negative gearing deductions.

This measure addresses concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.

Other matters: Energy Assistance Payment

A one-off Energy Assistance Payment will be made in 2016-17 of $75 for single recipients and $125 per couple for those eligible for qualifying payments on 20 June 2017 and who are a resident in Australia.

Qualifying payments include the Age Pension, Disability Support Pension, Parenting Payment Single, the Veterans’ Service Pension and the Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on May 10, 2017 • Permalink

Posted in Contribution Strategies, LRBA, News & Stats, Retirement Planning, Superannuation

Posted by SMSF Coach - Liam Shorte on May 10, 2017

https://smsfcoach.com.au/2017/05/10/budget-matters-relevant-to-smsf-trustees/

Buying Property through your Super – SMSF

So you have heard you can buy an investment property with your superannuation? Here is some general information and pros and cons of property in an SMSF. I have also provided links to more comprehensive information on the strategies most often used.

People have been using their superannuation to buy property in their SMSF for decades now but it really came to the fore when SMSFs were allowed to borrow to buy assets in 2007 and when this was given more clarity in terms of borrowing to buy residential property in 2010.

Investing in property within superannuation is not as straightforward as investing outside the superannuation environment and you need to do your homework. Buying property through super can be great way to invest for retirement but it’s probably most suitable for people who are only 15 to 25 years away from it. Not only do they probably have 20 years or more contributions and hence sufficient balances for a deposit at their disposal, they are also more likely to be able to hold the property until after retirement to realise the best of the tax savings.

I have also provided some more detailed general guidance on specific strategies and the implementation process on my Property in an SMSF page.

Property Investment in an SMSF:

People are able to combine their superannuation accounts in to an SMSF and use then are able to buy both residential and commercial property with or without the support of a mortgage from a lender.

However it’s important to note that all investments need to be in the best interests of fund members and meet the Sole Purpose test of superannuation and the legislation dealing with this topic.

So please make sure that any property investment has an income stream and realistic prospects for capital growth. Overall, an SMSF investment strategy needs to take into account the personal circumstances of all the fund members, including their age and risk tolerance and needs to consider:

diversification (investing in a range of assets and asset classes)
the liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses)
the fund’s ability to pay benefits (when members retire) and other costs it incurs
the members’ needs and circumstances (such as, their age and retirement needs).
the steps that will be taken to insure the members and protect their retirement savings.

What you should make clear in the investment strategy:

When it comes to purchasing any investment asset through a SMSF, the Australian taxation office (ATO) provides the following guidance:

Investments must be purchased on an ‘arm’s length’ basis and must be maintained on a strict commercial basis.
The investment must meet the sole purpose test of providing retirement benefits to fund members.

In terms of property, this means that the purchase cost and sale price – as well as the rental income – must reflect a true market rate of return. It also means that you usually cannot buy the property from – or sell the property to – someone associated with any of the Fund’s members. This is called a “Related Party” transaction.

It also means that neither you nor anyone associated with you can receive any personal benefit of holding the asset. (more on this below)

So what are the pros and cons of holding a property in Superannuation?

Pros

Combined investing as a couple or family:. Your personal savings outside superannuation – or even your individual account balance(s) within superannuation – may not be enough to meet the deposit requirements of a direct property. Combining your account balances with the other members of your family, though, may give you the purchasing power you need to invest in a large asset.

It can be tax-effective. Superannuation receives concessional tax treatment on assets used to save for retirement. The earnings within your superannuation fund are taxed at only 15% with a 33% discount for assets held more than 12 months (i.e 10% CGT)– which is most likely less that your marginal tax rate. The big bonus is if you hold on to that property until retirement the earnings within the pension phase are tax-free. That is on the rent if you keep the property or the sale proceeds if you sell it. (subject to the $1.6m pension transfer limit per member from 1 July 2017).

Making repayments from pre-tax dollars. If you can afford to save and have room within your concessional contribution limits then you can salary sacrifice additional income to super to pay off the loan quicker from pre-tax dollars. So paying 15% on salary sacrifice and then making additional repayments rather than paying your marginal tax rate on the income and saving it outside super.

Supporting Business growth . While the rules prevent you purchasing a residential property from yourself or a related party, you can buy a commercial or industrial property (know as Business Real Property) to lease back to your own business – provided you pay a current market rate of rent. This helps free up funds to grow the business.

The feel of Bricks and Mortar! – providing more control over your investments. Many SMSF investors appreciate having control over the investments they buy and the ability to “value add” to their property investments via renovation or development (See more detail in SMSF Borrowing: What Can I Do With An Investment Property Within The Rules. there is no substitute for that feeling when you have a real understanding of where your money is invested.

Cons

Big lumpy illiquid asset. Diversification – the wise move of not having all your eggs in one basket is more difficult to achieve if your SMSF owns just one or two large assets. That lack of diversification may not be in the best interests of the SMSF members especially across generations. The old adage “You can sell off a bathroom when you need cash” comes to mind so make sure you plan your “what if strategies” and look at insurance, cash buffers and especially the funding of future pensions upfront.

Set up costs are higher. There are thousands of dollars in set-up costs and there are sometimes higher fees involved in getting a loan through your SMSF with lenders. As always set up costs should be balanced against long term benefits of the strategy. Because of the costs buying property through a SMSF is generally only suitable for funds with $200,000 or more.

Not great for Negative Gearing. If you borrow to buy property through your super and you’re negatively geared, the tax offset only applies to other income earned within the fund taxed at only 15% – not at your marginal tax rate on your regular income.

You cannot benefit personally from the property. Investments within a SMSF must be purchased via an ‘arm’s length’ transaction and must be maintained on a strict commercial basis. As such with a residential property, you cannot purchase from, lease to, or rent to a related party. The ATO advises that one of the most common breaches of the sole purpose test is in assets that provide a pre-retirement benefit to a member or associate. Some examples of a breach would be using a SMSF property as a personal holiday house, or renting a SMSF property to a family member.

You must be certain of future cash flow. Firstly you must expect to have to provide a higher deposit than if borrowing directly. While you can borrow to buy property within a SMSF, you cannot borrow to build or improve the property. Ensure that your level of contributions, plus the rental income, will be enough to cover any costs that you will need to meet from cash. Think seriously about having decent Income Protection insurance as well as Life and TPD insurance for the term of the loan. Again, a cash buffer is essential.

Liquidity at retirement. When your superannuation transfers to the pension phase you will need to ensure that you have built up a sufficient amount of cash to fund the required pension payments without risking a fire sale of the property. This can range from 4% of the pension member’s balance before 65 to 5% from 65-74 and upwards from there.
Reduction in Personal borrowing capacity: With banks typically asking for personal guarantees now which then restricts your personal borrowing power. (Thanks Mark Hearne).

There are many tips and traps to be aware of when it to comes to investing within a SMSF that I have done over 14 separate articles on the subject and all are available free on my blog at www.smsfcoach.com.au . So do some reading and your own research and please ensure that you get professional advice on your own circumstances, and assistance either via our team or your own advisors before you set up your fund or start the strategy.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

5 Comments

by SMSF Coach - Liam Shorte on February 13, 2017 • Permalink

Posted in Borrowing, Investment Strategies, LRBA, Property

Posted by SMSF Coach - Liam Shorte on February 13, 2017

https://smsfcoach.com.au/2017/02/13/buying-property-through-your-super-smsf/

How to Use Insurance to Pay Out an SMSF Property Mortgage on Death or Disability

Like every strategy we discuss with clients we stress that have to look at the exit strategies up front rather than scramble to react if something happens that changes the financial position of the members or of the fund.

While a self managed superannuation fund can increase its assets and leverage the potential growth by borrowing to purchase a property, that borrowing can also cause financial distress if a fund member dies or becomes disabled. The lack of liquidity and cash flow could force the trustee to:

Sell the property in a difficult or dropping market
Realise capital gains or losses before expected i.e. before the members are in pension phase
Have to deal with increased transaction costs.

Since August 2012 Trustees of an SMSF have been required to consider insurance for members and we would say that is very sensible when debt is involved.

SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – REG 4.09 (2)(e)

The trustee of the entity must formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:

for a self managed superannuation fund – whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund

In the past strategies like Cross insurance on each member of superannuation fund was often used to reduce the impact that the sudden death or disability of a member may have on a fund however the ATO have ruled out many of these strategies including using the SMSF to fund Buy-Sell Agreements between business partners.

SMSF mortgage repayment solutions on death

If there is life insurance on the member that dies then any proceeds are added to their account balance and can be paid as a lump sum out of the fund to beneficiaries but that may leave a fund a debt still to be paid off and with less contributions going in as one member is deceased and the fund may not have the free cash-flow to fund the full balance pay out without selling the property.

The strategies outlined below are those now available as to manage the cash-flow liquidity issues and death benefit payment requirements that have arisen when a fund member dies suddenly, whilst the fund still has a Limited Recourse Loan Arrangement in place.

Payment of insurance benefits as an income stream to spouse

If it is 2 spouses or defacto’s that have set up an SMSF and borrowed to purchase an investment property, life insurance is often used to extinguish the debt. The reason for this is that generally the disability or death will eliminate or reduce the level of contributions that are made for the member, from which the loan repayments have been sourced.

Where the members of a fund are spouses then death benefits can be paid as an income stream. This means that even if a fund has borrowed to purchase a property, the property does not need to be disposed of to pay out the death benefit. This is even more important if your business is run out of the property.

In this case the life/TPD cover can be held by the member covered by the insurance and the premium can be paid from that members account. These arrangements comply with the SIS Regs, and the policy can be held through the self managed fund.

If the member dies or becomes disabled, the proceeds will be credited to the affected member’s account and loan will be repaid. Following the repayment of the loan a pension will commence to be paid to the member in the event of TPD or to the spouse in the event of death. If under 65 they can take as little as 4% per annum to keep as much in the fund as possible.

Example: Tax Dependants like spouses

Jack and Diane are married and members of Mellencamp Family Super Fund (“SMSF”)
Account Balances:
Jack – $100,000
Diane – $100,000
SMSF took out a loan of $300,000 to acquire property valued at $500,000

example-1-tax-dependants

Jack dies after getting a bad knock playing football ( for the younger readers get the full story here

anyway thank you for indulging me and now back to the example:

SMSF Cash flow after Jack’s death

The loan is paid out.
Diane starts a minimum 4% annual death benefit pension. Only one member left contributing now but no interest to pay.

Rent	$17,500
Concessional contributions	$5,000
Total inflows	$22,500
Interest	$0
Operating costs	($2,000)
Life premiums	$0
Pension	($16,000)
Total outflows	($18,000)
Tax	($675)
Net cash flow (surplus)	$3,825

what are the tax implications of the pension

Age at Death	Type of Super Death Benefit	Age of Recipient- DEPENDANT	Taxation Treatment of Taxed Element
Any age	Lump Sum	Any age	Tax free
60 & above	Income stream	Any age	Tax free
Below 60	Income stream	60 & above	Tax free
Below 60	Income stream	Below 60	Marginal rate of tax less 15% tax offset

To implement the strategy, the following factors, need to be considered:

The funds trust deed must permit the fund to hold the insurance and to pay the TPD or death benefits as an income stream
The fund’s investment strategy should state that the trustees have considered the needs of the individual members and determined to take out life insurance for the fund members in order to repay any outstanding mortgage under an LRBA
Whether the fund’s cash flow allows for the taking out of the insurance policies. The premiums will normally be deductible in this circumstance as the benefits can be paid as a pension. For younger trustees you should consider Level Premiums and reviewing the cover as the loan is paid down.

Funding benefits from a reserve

If a fund is not able to pay a death or disability benefit in the form of a pension because they don’t have a spouse or the fund trust deed does not permit the payment of a benefit as a pension, then it may need to consider the use of a reserve strategy.

This strategy involves the fund trustee taking sufficient TPD and death cover over the lives of the fund members to enable the repayment of a loan and the payment of benefits as a lump sum.

The fact that the insurance policies are paid from the fund’s reserve and the insurance proceeds in the event of an insured event are credited to the reserve, means that the insurance benefit can remain in the fund. The fact that the insurance proceeds can remain in the fund means that insurance liabilities can be met and the loan repaid without the asset purchased under the borrowing arrangement needing to be sold.

In order to implement the strategy effectively, insurance policies premiums for each of the fund members will need to be paid from the reserve. The fact that the premium is paid from the reserve will then require any insurance proceeds after an insured event to be credited to the reserve.

Example 2 – Non- Tax Dependants – 2 brothers in a business

example-2-non-tax-dependants

So sadly Brad dies …big ahhhh!

SMSF Cash flow after Brad’s death

Death benefits are held in a Reserve.
The loan is paid out but the value is held in the reserve account
Results in large reserve ($400,000)
allocate back to Brian < 5% of his balance p.a. or
allocate up to $25,000 p.a. this year and $25,000pa going forward to Brian’s account depending on other concessional contributions in year

Rent	$17,500
Concessional contributions	$10,000
Total inflows	$27,500
Interest	($18,000)
Operating costs	($2,000)
Life premiums	($1,500)*
Pension	$0
Total outflows	($21,500)
Tax	($900)
Net cash flow (surplus)	$5,100

* Deducted from general fund expenses

Other Issues to consider

There are a number of other issues that fund trustees will need to consider when implementing this strategy:

If the members of the fund are business partners rather than spouses, the spouse of the deceased member may feel that the business partners are benefiting from the death of their spouse. It is really important to discuss these strategies upfront with family so they know they are provided for but that the business needs stability too.
When the insurance proceeds are credited to a reserve, it may be difficult to transfer that reserve back to fund members without exceeding the excessive concessional contributions cap.
The insurance premiums are not tax-deductible under Section 295-465 of the ITAA 97 because the policy is not held for the purpose of providing a fund member with a death or disability benefit.
The cost of the insurance premiums could be very high so seek advice on all possible solutions.
The cost of the insurance premiums may limit the trustee’s capacity to take out other insurance cover for members

By the Way – one other reason to cover your exit strategies

What happens if a trustee fails to address insurance in their SMSF?

The trustees could be fined 100 penalty units ($21,000) for each trustee – Section 34 SIS Act; Section 4AA Crimes Act 1911

and if someone else has been affected by the loss as a result:

A person who suffers loss or damage …may recover … against that other person or against any person involved in the contravention. – Section 55(3) SIS Act

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net

1 Comment

by SMSF Coach - Liam Shorte on November 17, 2016 • Permalink

Posted in Estate Planning, Insurance Strategies, Life Insurance, LRBA, Property, SMSF Exit Strategies, SMSF Management

Posted by SMSF Coach - Liam Shorte on November 17, 2016

https://smsfcoach.com.au/2016/11/17/how-to-use-insurance-to-pay-out-an-smsf-property-mortgage-on-death-or-disability/

#SMSF Alert : ATO guidance on related party SMSF loans (LRBAs) – Update 2025-26

Rate for 2025-26 Related Property LRBA is 8.95% and Listed Shares 10.95%

Old Rate for 2024-25 Related Property LRBA was 9.35% and Listed Shares 11.35%

The ATO have issued long-awaited guidelines providing SMSF trustees with suggested ‘Safe Harbour’ loan terms on which trustees may use to structure a related party Limited Recourse Borrowing Arrangement (LRBA) consistent with dealing at arm’s length with that related party.

By implementing these “Safe Harbour” loan terms, SMSF trustees are assured by the ATO Commissioner that

..for income tax purposes, the Commissioner accepts that an LRBA structured in accordance with this Guideline is consistent with an arm’s length dealing and that the NALI provisions do not apply purely because of the terms of the borrowing arrangement.

It is absolutely essential that all non-bank SMSF borrowing arrangements (LRBAs) be reviewed prior now extended to 1 Jan 2017

Where has this come from?

The ATO first released and then re-issued ATO Interpretative Decisions in 2015 (ATO ID 2015/27 and ATO ID 2015/28), dealing with Non-Arm’s Length Income(NALI) derived from listed shares and real property purchased by an SMSF under an LRBA involving a related party lender – where the terms of the loan were not deemed to be on commercial terms.

These ATOIDs state that the use of a non-arm’s length LRBA gives rise to NALI in the SMSF. Broadly, the rationale for this view is that the income derived from an investment that was purchased using a related party LRBA, where the terms of the loan are more favorable to the SMSF, is more than the income the fund would have derived if it had otherwise being dealing on an arm’s length basis.

NALI is taxed at the top marginal tax rate, currently 47% – regardless of whether the income is derived while the fund is in accumulation phase where tax is normally 15% or in pension phase when the income would usually be tax exempt.

After that bombshell, the ATO announced that it would not take proactive compliance action from a NALI perspective against an SMSF trustee where an existing non-commercial related party LRBA was already in place, as long as such an LRBA was brought onto commercial terms or wound up by 30 June 2016.

The Nitty Gritty Details of the Safe Harbour Steps

The ATO has issued Practical Compliance Guideline PCG 2016/5. As a result, provided an SMSF trustee follows these guidelines in good faith, they can be assured that (for income tax compliance purposes) their arrangement will be taken to be consistent with an arm’s length dealing.

The ‘Safe Harbour’ provisions are for any non-bank LRBA entered into before 30 June 2016, and also those that will be entered into after 30 June 2016.

Broadly, this PCG outlines two ‘Safe Harbours’. These Safe Harbours provide the terms on which SMSF trustees may structure their LRBAs. An LRBA structured in accordance with the relevant Safe Harbour will be deemed to be consistent with an arm’s length dealing and the NALI provisions will not apply due merely to of the terms of the borrowing arrangement.

The terms of the borrowing under the LRBA must be established and maintained throughout the duration of the LRBA in accordance with the guidelines provided.

	Safe Harbour 1	Safe Harbour 2
Asset Type	Investment in Real Property	Investment in a collection of Listed Shares or Units
Interest RateNote: as of 10 Jan 2019: The RBA no longer round the rates to the nearest 5 basis points.	RBA Indicator Lending Rates for banks providing standard variable housing loans for investors. Use the May rate immediately preceding the tax year. (2015/16 year = 5.75%)(2016-17 year = 5.65%)(2017-18 year = 5.8%)(2018-19 year = 5.8%)(2019-2020 year = 5.94%)(2020-2021 year = 5.1%) (2021-2022 year = 5.1%)(2022-2023 year = 5.35%)2024 FY = 8.85% (2024-25 year = 9.35%) (2025-26 year 8.95%)	Same as Real Property + a margin of 2%
Fixed / Variable	Interest rate may be fixed or variable.	Interest rate may be fixed or variable.
Term of Loan	Variable interest rate loans:Original loan – 15 year maximum loan term (both residential and commercial).Re-financing – maximum loan term is 15 years less the duration(s) of any previous loan(s) in respect of the asset (for both residential and commercial).Fixed interest rate loan: Rate may be fixed for a maximum period of 5 years and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 15 years. For an LRBA in existence on publication of these guidelines, the trustees may adopt the rate of 5.75% as their fixed rate provided that the total period for which the interest rate is fixed does not exceed 5 years. The interest rate must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 15 years.	Variable interest rate loans:Original loan – 7 year maximum loan term.Re-financing – maximum loan term is 7 years less the duration(s) of any previous loan(s) in respect of the collection of assets.Fixed interest rate loan: Rate may be fixed up to for a maximum period of 3 years and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 7 years. For an LRBA in existence on publication of these guidelines, the trustees may adopt the rate of 7.75% as their fixed rate provided that the total period for which the interest rate is fixed does not exceed 3 years. The interest rate must convert to a variable interest rate loan at the end of the nominated period. The total loan cannot exceed 7 years.
Loan-Value –RatioLVR	Maximum 70% LVR for both commercial & residential property. Total LVR of 70% if more than one loan.	Maximum 50% LVR.Total LVR of 50% if more than one loan.
Security	A registered mortgage over the property.	A registered charge/mortgage or similar security (that provides security for loans for such assets).
Personal Guarantee	Not required	Not required
Nature & frequency of repayments	Each repayment is to be both principal and interest.Repayments to be made monthly.	Each repayment is to be both principal and interest.Repayments to be made monthly.
Loan Agreement	A written and executed loan agreement is required.	A written and executed loan agreement is required.

Information sourced from Practical Compliance Guidelines PCG 2016/5.

Potential Trap to be aware of: Importantly, as part of this announcement, the ATO also indicated that the amount of principal and interest payments actually made with respect to a borrowing under an LRBA for the year ended 30 June 2016 must be in accordance with terms that are consistent with an arm’s length dealing.Information sourced from Practical Compliance Guidelines PCG 2016/5.

Where to find the Indicator Rate in future year:

The PGS referred to: Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors. Applicable rates:

For the 2015-16 year, the rate is 5.75%
For the 2016-17 year the rate is 5.65%
For the 2017-18 and 2018-19 years the rate is 5.8%
For the 2019-20 year the rate is 5.94%
For the 2020-21 year the rate is 5.1%
For the 2021-22 year the rate is 5.1%
For the 2022-23 year the rate is 5.35%
For the 2023-24 year the rate is 8.85%
For the 2024-25 year the rate is 9.35% until 30 June 2025
For the 2025-26 year the rate is 8.95%

For 2019-20 and later years, the rate published for May (the rate for the month of May immediately prior to the start of the relevant financial year)

It is the applicable rate under Column H of the above spreadsheet (click on link). The rate seems to have started in August 2015 but I assume we must use the May rate from now on.

In referencing the Indicator Rate you can use:
Ref: Title: Lending rates; Housing loans; Banks; Variable; Standard; Investor
Lending rates; Housing loans; Banks; Variable; Standard; Investor
Frequency: Monthly
Units: Per cent per annum
Source RBA
Publication Date 04-Apr-2016
Series ID: FILRHLBVSI

Example – Real Property taken from Practical Compliance Guideline PCG 2016/5 Example 1

A complying SMSF borrowed money under an LRBA, using the funds to acquire commercial property valued at $500,000 on 1 July 2011.

The borrower is the SMSF trustee.
The lender is an SMSF member’s father (a related party).
A holding trust has been established, and the holding trust trustee is the legal owner of the property until the borrowing is repaid.

The loan has the following features:

the total amount borrowed is $500,000
the SMSF met all the costs associated with purchasing the property from existing fund assets.
the loan is interest free
the principal is repayable at the end of the term of the loan, but may be repaid earlier if the SMSF chooses to do so
the term of the loan is 25 years
the lender’s recourse against the SMSF is limited to the rights relating to the property held in the holding trust, and
the loan agreement is in writing.

We do not consider that this LRBA has been established or maintained on arm’s length terms. The income earned from the property, which is rented to an unrelated party, may give rise to NALI.

At 1 July 2015, the property was valued at $643,000, and the SMSF has not repaid any of the principal since the loan commenced.

If after considering TD 2016/16, it is determined that the income earned from the property is in fact NALI, to avoid having to report NALI for the 2015-16 year (and prior years) the Fund has a number of options.

Option 1 – Alter the terms of the loan to meet guidelines

The SMSF and the lender could alter the terms of the loan arrangement to meet Safe Harbour 1 (for real property).

To bring the terms of the loan into line with this Safe Harbour, the trustees of the SMSF must ensure that:

The 70% LVR is met (in this case, the value of the property at 1 July 2015 may be used).

Based on a property valuation of $643,000 at 1 July 2015, the maximum the SMSF can borrow is $450,100. The SMSF needs to repay $49,900 of principal as soon as practical before 30 June 2016.

The loan term cannot exceed 11 years from 1 July 2015.

The SMSF must recognise that the loan commenced 4 years earlier. An additional 11 years would not exceed the maximum 15 year term.

The SMSF can use a variable interest rate. Alternatively, it can alter the terms of the loan to use a fixed rate of interest for a period that ensures the total period for which the rate of interest is fixed does not exceed 5 years. The loan must convert to a variable interest rate loan at the end of the nominated period.

The interest rate of 5.75% applies for 2015-16 and 5.65% p.a. applies from 1 July 2016 to 30 June 2017. The SMSF trustee must determine and pay the appropriate amount of principal and interest payable for the year. This calculation must take the opening balance of $500,000, the remaining term of 11 years, and the timing of the capital repayment, into account.

After 1 July 2016, the new LRBA must continue under terms complying with the ATO’s guidelines relating to real property at all times.

For example, the SMSF must ensure that it updates the interest rate used for the loan on 1 July each year (if variable) or as appropriate (if fixed), and make monthly principal and interest repayments accordingly.

Option 2 – Refinance through a commercial lender

The fund could refinance the LRBA with a commercial lender, extinguish the original arrangement and pay the associated costs.

For any period after 1 July 2015 that the original loan remains in place, the SMSF must ensure that the terms of the loan are consistent with an arm’s length dealing, and relevant amounts of principal and interest are paid to the original lender.

The SMSF may choose to apply the terms set out under Safe Harbour 1 to calculate the amounts of principal and interest to be paid to the original lender for the relevant part of the 2015-16 year.

Option 3 – Payout the LRBA

The SMSF may decide to repay the loan to the related party, and bring the LRBA to an end before 30 January 2017.

For any period after 1 July 2015 that the original loan remains in place, the SMSF must ensure that the terms of the loan are consistent with an arm’s length dealing, and the relevant amounts of principal and interest are paid to the original lender.

The SMSF may choose to apply the terms set out under Safe Harbour 1 to calculate the amounts of principal and interest to be paid to the original lender for the relevant period.

Each option will have many advantages and disadvantages – so it is important to understand what the practical implications of each option are, and how physically you will approach each option. Seek specialised advice on this matter as it is not a strategy suitable for DIY implementation

Important Note to 13.22C or Unrelated Unit Trust Investors

The guidelines provided in this PCG are not applicable to an SMSF LRBA involving an investment in an unlisted company or unit trust (e.g. where a related party LRBA has been entered into to acquire a collection of units in an unrelated private trust or a 13.22C compliant trust). As such, trustees who have entered into such an arrangement will have no option but to benchmark their particular loan arrangement based on commercial loan terms, or to bring the LRBA to an end.

Please visit out SMSF Property page to get details on all available strategies for SMSF property investors.

UPDATE (Relief for those caught by Budget measures)

In a letter to an industry association, the Treasurer, Scott Morrison, has outlined transitional arrangements to allow additional non-concessional contributions above the proposed lifetime limit in certain limited circumstances. Contributions made in the following circumstances may be permitted without causing a breach of the lifetime cap:

where the trustees of a self managed superannuation fund (SMSF) have entered into a contract to purchase an asset prior to 3 May 2016 that completes after this date and non-concessional contributions were planned to be made to complete the contract of sale. Non-concessional contributions will be permitted only to allow the contract to complete provided they are within the relevant non-concessional cap that was applicable prior to Budget night, and
where additional contributions are made in order to comply with the Australian Taxation Office’s (ATO) Practical Compliance Guideline (PCG) 2016/5 related to limited recourse borrowing arrangements, provided they are made prior to 31 January 2017.

Additional non-concessional contributions made under these proposed transitional arrangements will count towards the lifetime cap, but will not result in an excess.

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　9899 3693, Mobile: 0413 936 299

PO Box 6002, Norwest NSW 2153

U40, 8 Victoria Ave., Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

7 Comments

by SMSF Coach - Liam Shorte on April 6, 2016 • Permalink

Posted in Audit, Borrowing, Loans, LRBA, News & Stats, Property, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on April 6, 2016

https://smsfcoach.com.au/2016/04/06/smsf-alert-ato-guidance-on-related-party-smsf-loans-lrbas/

Stamp Duty on Transfers of Property to an SMSF

Immediately after I published my last blog Stamp Duty Requirements on Change of SMSF Trustees I got questions on stamp duty on property transfers to a Self Managed Superannuation Fund. At first I attempted to the answers myself but to ensure ongoing accuracy I am pleased to have Caroline Harley, one of the best lawyers in the SMSF sector review and update this information.

Caroline Harley | Special Counsel

So here is the current breakdown on stamp duty for property investors or small business owners looking to move property they own personally in to their SMSF.

Stamp duty imposed by State and Territory governments should always be researched and considered before transferring land to an SMSF. Concessions or exemptions from duty may be available depending on the State or Territory in which the land is situated.

This concession can be very significant. If the SMSF purchases NSW land/property from a member with a market value of $500,000, the duty which would apply (but for the concession) is $17,990. With the concession, the saving in duty is $17,240 as concessional duty is only $750.

Reminder: the land/property must be business real property owned in the personal name of the member rather than a company (otherwise the trustee would not be permitted to acquire the real estate).

The provisions of the duties legislation of each State or Territory differ, however where concessions or exemptions are available they generally require the transferor to continue to be the beneficial owner of the land (this relates to business real property as it is the only land which an SMSF may directly acquire from a member).

The following tables set out the details of the stamp duty offices and relevant provisions of the relevant legislation in each State and Territory. This is up to date as at 27 February 2017.

NSW	Transfer to a SMSF
Duty payable	$750 subject to conditions being met. Previously $500 but increased 01/02/2024. Depending on the documentation in place for the transaction you may be able to apply for a retrospective re-assessment and obtain a refund. An SMSF specialist lawyer would be able to advise you on this.
Relevant provisions	62A NSW Duties Act 1997
General description of legislation	Nominal duty is charged on a transfer of dutiable property from a person to a trustee of an SMSF where the: transferor is the only member of the super fund or the property is to be held by the trustee solely for the benefit of the transferor (ie property or proceeds of sale of property cannot be pooled with property held for another member and no other member can obtain an interest in the property or proceeds of sale); and property is to be used solely for the purpose of providing a retirement benefit to the transferor.
Document-ation	Evidence that it is a complying SMSF as at the date of the agreement/transfer, copy of minutes of meetings of the SMSF stating the intention to have the property transferred to it and confirming that the property was owned beneficially by the transferor member, copy of the SMSF trust deed or a variation to it, showing a non revocable clause that the property is segregated for the transferor member’s benefit only (follows wording in section62A(2))
Legislation	Duties Act 1997 (NSW)
Legislation website	http://www.austlii.edu.au/au/legis/nsw/consol_act/da199793/
Office	Office of State Revenue
Website	http://www.osr.nsw.gov.au

VIC	Transfer to a super fund
Duty payable	No duty subject to conditions being met
Relevant provisions	Section 41 Vic Duties Act 2000
General description of legislation	No duty is charged in respect of the transfer of dutiable property made without monetary consideration to a trustee of a super fund, where there is no change in beneficial ownership (again, property must be held in the personal name of the member and not a company name). A transfer of property to a trustee of a super fund by a beneficiary of the fund does not, for the purposes of this section, effect a change in the beneficial ownership of the property.
Document-ation	Documents are required – refer to ‘Evidentiary Requirements for Dutiable and Exempt Transactions’ on SRO website
Legislation	Duties Act 2000 (VIC)
Legislation website	http://www.austlii.edu.au/au/legis/vic/consol_act/da200093/
Office	State Revenue Office (SRO)
Website	http://www.sro.vic.gov.au/land-transfer-duty

No luck in QLD

QLD	Transfer to a super fund
Duty payable	$20 subject to conditions being met
Relevantprovisions	You can claim this concession on transfer duty if you: transfer dutiable property between superannuation funds to merge or split the funds create a trust of dutiable property because of the variation or reconstitution of a superannuation fund. (Read more about transfer duty on trusts.) The superannuation fund must become a complying superannuation fund within 1 year. A complying superannuation fund is: a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 (Cwlth), section 42 or 42A an exempt public sector superannuation scheme under that Act.
General desc-riptionof legislation	A transfer of dutiable property is a concessional dutiable transaction.
Document-ation	Duties office form and documents are required. https://www.publications.qld.gov.au/ckan-publications-attachments-prod/resources/755a8bd9-7134-4a5f-85e7-a54c747ec7bd/form-d2.6-v2-effective-7-jan-2008.pdf?
Legislation	Duties Act 2001 (QLD)
Legislationwebsite	http://www.austlii.edu.au/au/legis/qld/consol_act/da200193/
Office	Office of State Revenue
Website	http://www.osr.qld.gov.au/duties/index.shtm l

WA	Transfer to a super fund
Duty payable	$20
Relevant provisions	Sections 122 – 124 WA Duties Act 2008
General description of Legislation	Nominal duty is charged on a transfer of dutiable property by a person to the trustee of a super fund where –

	▪ there is consideration for the transfer; and
	▪ only the transferor can be a member of the super fund or the property is held in the superfund specifically for the transferor (ie property cannot be pooled with the assets of another member and no other members can obtain an interest in the property); and
	▪ the property (or if sold, the proceeds) can only be held in the superannuation fund to be provided to the transferor as a retirement benefit.
	If the fund subsequently fails to satisfy any of the requirements (above) full stamp duty is payable in respect of any dutiable property still held.
	Nominal duty is charged under section 124 in respect of a transfer of dutiable property to the trustee of an SMSF that is an employer sponsored fund where –
	there is no consideration for the transfer.

Document- ation	Application form is required – ‘Superannuation Fund Transactions – Application for Nominal Duty’.
Legislation	Duties Act 2008 (WA) Also refer to Duties Fact Sheet – Superannuation Transactions
Legislation website	http://www.austlii.edu.au/au/legis/wa/consol_act/da200893/
Office	Office of State Revenue
Website	http://www.finance.wa.gov.au/cms/section.aspx?id=209

ACT	Transfer to a super fund
Duty payable	Ad valorem duty applies
Relevant provisions	No provision for exemption or concession from duty
General description of legislation	Duty is charged on a transfer of dutiable property.
Document-ation	Lodgement form and documents are required.
Legislation	Duties Act 1999 (ACT)
Legislation website	http://www.austlii.edu.au/au/legis/act/consol_act/da199993/
Office	ACT Revenue Office
Website	http://www.revenue.act.gov.au

SA	Transfer to a super fund
Duty payable	Ad valorem duty applies
Relevant provisions	No provision for exemption or concession from duty
General description of legislation	A transfer of property to a person who takes as trustee is deemed to be conveyance whether or not any consideration is given (except in certain circumstances regarding the transfer of family farming properties)
Document-ation	Lodgement form and documents are required
Legislation	Stamp Duties Act 1923 (SA)
Legislation website	http://www.austlii.edu.au/au/legis/sa/consol_act/sda1923157/

Office	Revenue SA
Website	http://www.revenuesa.sa.gov.au

NT	Transfer to a super fund
Duty payable	Ad valorem duty applies
Relevant provisions	No provision for exemption or concession from duty
General description of legislation	A conveyance of dutiable property is a dutiable instrument.
Document-ation	Lodgement form and documents are required
Legislation	Stamp Duty Act (NT)
Legislation website	http://www.austlii.edu.au/au/legis/nt/consol_act/sda151/
Office	Territory Revenue Office
Website	http://www.treasury.nt.gov.au

TAS	Transfer to a super fund
Duty payable	$50
Relevant provisions	Section 49 Duties Act 2001 (TAS)
General description of legislation	Where the duties office is satisfied there is no change in the beneficial ownership of the property duty chargeable on the transfer is $50. Also an exemption is available in certain circumstances regarding the transfer of primary production land.
Document-ation	For primary production see ‘Documentary Evidence requirements Guideline’, for other transfers duties office reviews each transfer on its own facts recommend seeking confirmation of eligibility prior to lodgement.
Legislation	Duties Act 2001 (TAS)
Legislation website	http://www.austlii.edu.au/au/legis/tas/consol_act/da200193/
Office	State Revenue Office
Website	http://www.sro.tas.gov.au

If you don’t get an exemption the the rates applicable are:

Moving Property to an SMSF is not something to be done lightly without looking at the pros and cons as well as the procedures in your state or territory.

We have design a 3 part guide to buying a property in an SMSF

Even more information and complimentary strategy ideas are available on our Property in a SMSF page. Contact Caroline for specific legal advice on your proposed strategy.

IMPORTANT

This information is current as at the date of publication but may be subject to change. This article is general in nature and has been prepared without taking into account a potential your objectives, financial situation or needs. Before making a recommendation based on this article, seek personal legal and tax advice and consider its appropriateness based on the your objectives, financial situation and needs.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

PO Box 6002 NORWEST NSW 2153
Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
Suite 4, 1 Dight St., Windsor NSW 2756

Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223

Image courtesy of jscreationzs at FreeDigitalPhotos.net

16 Comments

by SMSF Coach - Liam Shorte on March 12, 2015 • Permalink

Posted in LRBA, Property, SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on March 12, 2015

https://smsfcoach.com.au/2015/03/12/stamp-duty-on-transfers-of-property-to-an-smsf-as-at-01-jan-2015/

ATO SMSF Video: SMSF loans to you or your relatives

I get calls from people frequently who mistakenly believe that their SMSF can provide them with a loan or they can access their super whenever they like. This is not the case!

I have seen people with small businesses who get in short-term cash flow problems and think they can dip in to their SMSF to fund the business over the hard time. This is the most common breach of SMSF rules and the ATO is clamping down very hard on those who contravene the rules.

Your SMSF can’t lend money or provide financial assistance to a member or a member’s relative.
Investments by the trustees in arrangements which involve the members themselves, or related parties, are restricted, and more often than not, are NOT ALLOWED.

Watch this video from the ATO for more information.

Superannuation is meant to be the sole Purpose of providing Retirement Income to the members not support for their business. Too often that initial dip leads to larger withdrawals and a downward spiral. Remember if your business is in trouble then your Superannuation maybe the only asset actually protected in the event of Bankruptcy so don’t dip in!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Benefits Of Transferring A Business Property In To Your SMSF – Superannuation Strategy

Years after the 2008 financial crisis and some people have been slow to regain confidence in the share markets and low cash and term deposit interest rates leave them cold. A growing number of people have considered shifting their superannuation to the more self- directed option of a self-managed superannuation fund (SMSF).

Small to Medium Business owners have always been at the forefront of adopting SMSFs and they have been particularly interested in this rapidly growing area for greater control of their superannuation savings and the flexibility of investments allowed in a SMSF structure. However the ability to either transfer their business premises into their SMSF via a contribution or sale, depending on their cash flow circumstances, has been attractive to many business owners.

Current legislation governing SMSFs, the SIS Act, allows a SMSF to acquire only three types of assets from the members or a related party. These assets are business real property, widely held managed funds and listed securities (shares).

Business real property is best defined as “any freehold or leasehold interest of the entity in real property where the real property is used wholly and exclusively in one or more businesses (whether carried on by the business or not).” This definition does not allow much leeway so you should seek professional advice to ensure that your property satisfies the requirements of the “wholly and exclusively” business use test and meets the definition of business real property prior to implementing this strategy

Benefits:

Release equity to build the business – you can access superannuation funds to help fund business growth prior to retirement by way of a cash purchase by the SMSF.
Tax minimisation – the property moves in to the concessionally taxed superannuation environment; 15% tax rate while members are in accumulation phase or exempt from tax when members are in pension phase.,
Asset Protection – to protect the value of the business real property in the event of bankruptcy, litigation or changes to your industry destroying your market.
Build funds for retirement – you have a bricks and mortar investment to boost your retirement funds earning market rent at concessional rates with the ability to avoid any CGT if sold later.
If you are seeking new premises then buying in your super fund allows you the security of tenure that comes with being your own landlord.
Helps in preparing a business for transfer or sale. If the new owner or family members cannot afford to buy the business and the property, you can sell the business premises and lease them the property.

Risks:

You should always ensure the strategy meets the Sole Purpose test of providing for your retirement. It should stack up as a stand-alone investment in its own right.
If your business should fail and you can no longer lease the premises the you are hit with a double whammy with no income in your personal name and possibly an asset that is hard to lease to a new third-party
While it may be a sound investment now, things may change and your company may outgrow the premises leaving you again with a commercial property that may be hard to sell to extract equity for your next move.
Commercial, retail and industrial property is often a good income orientated investment with income well above that available from residential property but rarely sees the same degree of capital growth. You need to be aware of the trade-off and a diversified portfolio should be considered.
Once you are in pension phase you will need to fund pensions so you need to ensure liquidity in the fund. This is fine while rented or you can make contributions but remember if not working after age 65 you cannot make further contributions to help with liquidity.

Transfers of business real property purchased from related parties must be transferred at current market value as if the transaction was to occur on an arm’s length basis. This requirement allows for very little manipulation of the market value and heavy penalties could apply if any transfer value didn’t stand up to audit and ATO scrutiny.

So you have three or more options when it comes to the strategy. Your SMSF can buy the property utilising cash currently within the SMSF as a normal purchase. If your fund does not have enough cash then you can look at using a Limited Recourse Borrowing Arrangement to borrow the shortfall. More details on that strategy can be found here.

Alternatively, you can structure the deal as an in-specie transfer (a contribution of an asset, in this case property, instead of cash). You are still subject to member contribution caps but we have moved properties worth up to $500,000 in for couples and $1,000,000 where the SMSF had 4 members using a combination of concessional contributions limits and the 3-year bring forward rule on non-concessional limits.

You may also be able to use the Small Business CGT concessions in conjunction with a short term LRBA to move a property of up to $1.445,000 in to the fund with careful planning.

The whole deal has been sweetened by the fact that a number of the State Revenue Offices including NSW OSR have allowed concessional stamp duty stamp ($500) on in-specie property transfers whereby no cash has changed hands. This stamp duty saving can make transferring the business premises into a SMSF much more attractive. It should be noted that stamp duty is a state tax with no uniformity between states. Please seek legal advice always when dealing with stamp duty on property transfers and tax advice when moving assets between entities.

Remember the core philosophy behind Superannuation is that they must adhere to the Sole Purpose Test. While a strategy may help your business currently, its primary goal should be to provide for your retirement so the investment should always stand up as a viable investment regardless of your internal lease arrangements.
Check out the most common mistakes people make when dealing with property, borrowing and a SMSF here:

Property through super in a SMSF – Part 3: 20 most common mistakes

SMSF Borrowing: What Can I Do With An Investment Property Within The Rules.

Stamp Duty on Transfers of Property to an SMSF as at 01 Jan 2015

Keep updated by putting an email address in on the left hand column and pressing the “Sign me up!” button.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Bye for now.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02 9899 3693 , Mobile: 0413 936 299

PO Box 6002, Norwest NSW 2153

40/8 Victoria Ave. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Advisory Pty Ltd (ABN 34 605 438 042) (AFSL 476223)

4 Comments

by SMSF Coach - Liam Shorte on March 5, 2014 • Permalink

Posted in Borrowing, Contribution Strategies, Investment Strategies, LRBA, Property

Posted by SMSF Coach - Liam Shorte on March 5, 2014

https://smsfcoach.com.au/2014/03/05/benefits-of-transferring-a-business-property-in-to-your-smsf-superannuation-strategy/

Landlords Insurance – a must for your SMSF Property

I trained in General Insurance in the UK after my Graduation and much of that time was in the complaints, claims and product design departments. So I know how things go wrong when people take out unsuitable policies or under-insure their properties. 24 years later and nothing has changed, so I have been recommending people use a General Insurance Broker if they are inexperienced, lack confidence or want help and advice about insuring their business, liability or property assets.

That brings me to the title of this blog and I asked my preferred Insurance Broker here in the Hills District of Sydney, who operates countrywide, to explain the insurance requirements for an SMSF buying property

Don’t skimp on your insurances because when the time comes and you have a claim, you won’t be congratulating yourself on how much money you saved on your insurance premiums.

If you have purchased property in your SMSF it is important for you to take the correct steps to insure your investment.

If you borrow against the assets in your SMSF the mortgagor will require you to have adequate cover for the asset and for the Liability obligations of the SMSF. If the assets of the fund cover the purchase in full however you are still required as Trustee of the fund to correctly insure the funds interests. The fund is not permitted to “self-insure” any assets or property. The ATO has strict guidelines regarding the duties and obligations of SMSF trustees so it is important to get your insurance program right.

The question arises: who takes out the property insurance and landlord’s protection insurance, the SMSF Trustee or the Holding Trustee? I refer to this content from Towsends Law on the matter

SMSF Trustee
The SMSF Trustee is entitled to take out insurances for the property as the Fund is liable under the loan and is also absolutely entitled to the benefit of the Property.

As the Fund is ultimately the party that is detrimentally affected should anything happen to the Property, the SMSF Trustee should ensure that the Fund is able to claim for any damage that might occur.

Holding Trustee
The Holding Trustee is the legal owner of the land and is entitled to insure the property against damage, and likewise for landlord insurance. Some lenders may also insist that the registered proprietor of the property holds an insurance policy for the property.

But it is important to keep in mind the nature of the arrangement between the SMSF Trustee and Holding Trustee should insurance be taken out by the Holding Trustee.

As the Holding Trustee is a bare trustee it must make sure that it does not take any action unless it is directed to do so by the Fund Trustee, who is absolutely entitled to the Property. This direction by the Fund Trustee should be done formally and in writing and confirmed by the Holding Trustee executing minutes to confirm this action.

Final Decision
The final answer is that both the Holding Trustee and the SMSF Trustee have an insurable interest in the land and that both are eligible to be the owner of the property insurance and landlord’s protection insurance over the property.

In both instances all amounts payable in respect of the insurance should be paid by the Fund Trustee. Obviously the Holding Trustee must hold any policy proceeds on trust for the SMSF.

From a purely administrative position it would be easier for the SMSF to hold the insurances to avoid the constant but mandatory interplay between the SMSF and its bare trustee the Holding Trustee. But the insurance company may have its own requirements as might the Fund’s Lender.

So our preference is to have all insurances for the SMSF in the name of the fund. You cannot have personal items or assets listed on a policy in your funds name, and likewise you cannot have your fund’s assets listed on a personal policy for some of your personal assets.

As with all insurances, you really do get what you pay for. The more optional extras you include in your policy the more protection you will have. Let’s go through a fairly standard Landlords Insurance policy and give some simple definitions of each section. Like your personal household insurance policy your landlord’s policy will have cover for both your Building and for your Contents. These are fairly standard; however it is important to read the definitions to determine which items come under which section of cover. You may be in for a surprise if you haven’t studied the wording properly.

Where a Landlords Insurance policy differs in comparison to your standard household insurance is in the additional covers offered.

Loss of Rent – This is to cover your lost income if you have a claim under your building and contents cover, and the property becomes uninhabitable as a result.
Strata Title Mortgagee’s Protection – This covers the mortgagee named in the Schedule as if they were “You” on the same terms as Section1 against physical loss or physical damage caused by any of the Defined Events (it does not include the Additional Benefits).
Deliberate Damage and/or Theft by Tenants – Cover for physical damage arising from deliberate, intentional or malicious acts and acts of theft to the Building or Contents by the Tenant.
Tenant Default – This cover if for loss of rent, payable by the Tenant, which arises from damage covered under the Deliberate Damage/Theft by Tenant section above or from breach of a written Lease agreement.

Chances are you’ve worked hard at acquiring your assets and building your Super for your retirement. Don’t skimp on your insurances because when the time comes and you have a claim, you won’t be congratulating yourself on how much money you saved on your insurance premiums. Instead you will be hoping your insurance policy will respond to your claim.

If you’re at all unsure on what you need, talk to an Insurance Broker. If you don’t know an insurance broker, then speak to the people you trust with your Investments and your accounts because they should be able to put you in touch with an Insurance broker they trust.

For more information please don’t hesitate to contact me.

The SMSF Coach or Verante Financial Planning do not request or receive any commissions or referral fees from recommending services from Insurance brokers, we just want the best professional advice for our clients.

For more detail on Investing in Property through an SMSF check out our previous articles

Property through super in a SMSF – Part 1: Background

Property through super in a SMSF – Part 2: The Process

Property through super in a SMSF – Part 3: 20 most common mistakes

SMSF Borrowing: What Can I Do With An Investment Property Within The Rules.

Can I borrow to buy a house and land package off the plan in my SMSF?

Keep updated by putting an email address in on the left hand column and pressing the “Sign me up!” button. Happy to take comments in the section below.

Bye for now.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

2 Comments

by SMSF Coach - Liam Shorte on February 12, 2014 • Permalink

Posted in Borrowing, Investment Strategies, Property

Posted by SMSF Coach - Liam Shorte on February 12, 2014

https://smsfcoach.com.au/2014/02/12/landlords-insurance-a-must-for-your-smsf-property/

Question on Multiple Progress Payments When Buying a House & Land Package in a SMSF

Question received:

Hi Liam

You recently mentioned that you it’s possible to do construction within a SMSF where there could be draw downs? Did you do an article on this somewhere that I could research?

Answer:

The following is general advice only and you should get very specific advice on your own proposed strategy before spending any money on implementing these strategies. Do not rely on general information in an article to put in place any strategy.

I wrote a general article on purchasing House and Land Packages which is linked at the end of this article. But to address the matter of draw downs in specific I will deal with it here. Yes you can engage in construction of a property under a LRBA (Limited Recourse Borrowing Arrangement) or Super Fund Borrowing as it is commonly know. It is also possible to have progress payments if the LRBA is structured properly.

The ATO provides example 10 in SMSFR 2012/1, which concerns the purchase of a house and land package by a SMSF under a LRBA. The ATO had said in that example that “because the contractual arrangement is for the acquisition of land with a completed house on it, and settlement occurs once construction of the house is finished, the deposit and the payment on settlement can be funded under a single LRBA.

This was followed up by a request for more details in a National Tax Liaison Group (NTLG) Superannuation Technical Sub=group meeting in December 2012 where they were asked to confirm more than 2 payments could be made, so not just deposit and final settlement payment but progress payments.

Please read section 7.4 of the NTLG Superannuation Technical Sub-group – meeting minutes December 2012

The result:

So they confirmed that it does not have to be only two payments. There can be multiple progress payments under the one single LRBA HOWEVER only if the terms of the LRBA allows the SMSF trustee to make multiple draw-downs for that purpose or if the SMSF funds the progress payments from its own funds.

You should also read the March 2013 minutes Section 7.5 Limited recourse borrowing arrangements and the payment of deposits. Please note NTLG minutes are for guidance by the ATO and are not binding rulings so get personalised advice..

So in summary:

The non-negotiable components of a successful LRBA for a House and Land package must include:

the single acquired asset is at all times a completed house and land, and
the security for the loan is at all times over the land and completed house, and
the LRBA must allow drawdowns for the deposit, progress payments and settlement.

As this is a very specialised process and requires specific wording to the LRBA agreement you need to work with a SMSF Specialist Advisor, experienced Mortgage Broker and a Lawyers who know how to draft personalised documentation. Do not trust a bank to provide all the documentation on a loan like this as they will only be interested in protecting their interest and that may not provide you with the documentation to meet the Section 67A exemptions.

It may be better to consider arranging a loan with an offset account (never a redraw facility as that would breach the rules) that is draw down in full initially and the excess stored in the offset account and used to fund the progress payments as the build progresses.

Please read my previous blog for more background on this subject Can I borrow to buy a house and land package off the plan in my SMSF?

Why not click here to Schedule a Meeting by phone, face to face or via Skype if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

3 Comments

by SMSF Coach - Liam Shorte on September 25, 2013 • Permalink

Posted in Borrowing, Loans, LRBA, Property

Posted by SMSF Coach - Liam Shorte on September 25, 2013

https://smsfcoach.com.au/2013/09/25/question-on-multiple-progress-payments-when-buying-a-house-land-package-in-a-smsf/

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All posts in category Borrowing

A structured guide to the questions every prospective SMSF owner must answer first

Introduction

1. What Are You Actually Trying to Achieve?

2. Is Locking Money Away the Right Move Right Now?

3. Do You Have the Time, Knowledge and Discipline to Run a Fund?

4. What Do You Have to Roll Over — and Can You Actually Move It?

5. Have Your Insurance Needs Been Properly Addressed?

6. Are You Genuinely Clear on Your Trustee Responsibilities?

7. Does the Economics Actually Stack Up?

8. Do You Understand the Risks — Not Just the Benefits?

9. Have You Thought Carefully About Your Investment Strategy?

10. If Borrowing Is Part of the Plan, Is It Genuinely Affordable?

11. What Happens If Circumstances Change?

My View as The SMSF Coach

Pre-Decision Checklist

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What You Need to Know Before You Sign Anything

1. How Are You Being Approached? Sales Pitch or Genuine Advice?

Warning Signs in How You Were Approached

Quick Licence Check — Do This Before Anything Else

2. Do They Provide Genuine Education — or Just Hype?

What Proper Education Must Cover

3. The True Costs of Running an SMSF

What You Should Expect to Pay

4. The Most Common Mistakes — and What the ATO Does About Them

Mistakes I See Every Year

Real ATO Cases That Should Make You Think Twice

Other Schemes the ATO Has Shut Down

5. My Final Coaching Advice

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Make sure to bookmark our Property in an SMSF page for guidance!

Introduction

1. Can an SMSF Legally Own Overseas Property?

2. New Zealand: A Special Case for Australians

2.1 The Overseas Investment Act — The Biggest Hurdle

2.2 The Bright-Line Test

3. The Dual-Country Tax Problem

3.1 Tax in New Zealand — IRD Obligations

3.2 Tax in Australia — ATO Obligations

3.3 The Australia–New Zealand Double Tax Agreement (DTA)

4. Structural and Compliance Hurdles

4.1 LRBA Borrowing — Possible But Highly Complex

4.2 Property Title and Ownership Verification

4.3 Currency Conversion and Record-Keeping

4.4 Annual Audit and Compliance Costs

5. Pros and Cons — The Balanced Assessment

6. Viable Pathways — What Actually Works

6.1 Off-the-Plan Apartments — OIO Exemption Certificate Pathway

6.2 Commercial Property

6.3 NZ-Listed Property Funds and REITs

7. Pre-Investment Checklist

8. My View as The SMSF Coach

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“Empowering clients to make the right choices!” –

Why use us as your Property Investment Advisor and Buyers Agent:

Why not build your property portfolio on good foundations? Make your next property acquisition an informed one.

Jay Anderson

Property Strategist, Buyers Agent, Property Advisor

QPIA®, LREA, Cert Prop. Serv, Dip. Bus Mgmt, Dip. Hos Mgmt, CHRM

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