For many people, a self-managed super fund (SMSF) offers a great opportunity to take control of their retirement savings. When it comes to investment strategy, an SMSF offers a unique advantage in the form of direct property ownership. While this option is not for everyone, for those able to navigate the complexities of property investment, tax implications, trust structure, personal obligations and costs within the SMSF framework, it can yield significant long-term benefits. The key to success lies in understanding your personal investment goals and ensuring that direct property aligns with them. With all the same tax advantages and concessions as more traditional funds, an SMSF can be a strong path to building long-term wealth Let’s first explore the basics of SMSF, how it works, and understand the rules, costs and risks of setting up a self-managed super fund (SMSF) for property investment.


What is an SMSF?

Unlike other types of funds, the members of an SMSF are typically also the trustees, which gives them control over how the fund is run and how their retirement savings are invested. Of course, with greater control also comes greater responsibility – SMSF members must ensure that their fund complies with super and tax laws in order to protect and maximise their retirement savings. It may seem daunting at first, but with the right guidance and support, managing an SMSF can be a rewarding way to take control of your own financial future.

With an SMSF, you have complete control over your finances and can make investment choices that suit your specific circumstances to maximise your earnings and potential tax benefits. Unlike traditional super funds, you can invest in a wide range of assets provided they meet the investment strategy prepared by the trustees and are held solely for the purpose of providing for members in their retirement. You can tailor your investments to suit your level of risk tolerance and financial goals.

Researching suitable investment paths takes a long time and running an SMSF is a continuous process while you manage its performance. Other disadvantages include managing the risks involved with non-compliance which can result in penalties. Also having a lack of statutory compensation or access to conflict resolution channels in case of disputes are factors to consider. SMSF’s cannot access government compensation schemes in the situation if money is lost including those outside of the trustee’s control. Poor decision-making can also lead to financial and legal consequences, especially in matters of taxation, so it’s important to seek ongoing financial advice.


How do you set up an SMSF?

1. Establish a Trust
The first step is to register the SMSF with the Australian Taxation Office (ATO). A trust is required to have trustees, assets, identifiable beneficiaries and an intention to create a trust.

2. Obtain the trust deed
A well-drafted trust deed lays out the rules and guidelines for how the fund will operate, and it’s crucial to get it right from the start. It’s wise to enlist the services of a legal practitioner or professional deed provider who understands the ins and outs of superannuation law and SMSFs. Your trust deed should be designed to give you and your fellow trustees as much control and flexibility as possible, so it’s worth taking the time to get it right. Once the deed is complete, make sure to execute it according to the rules in your state.

3. Sign a declaration
As part of your obligations, you’re required to sign a declaration form within 21 days of becoming a trustee. The form, which is available from the ATO, confirms that you understand your duties and responsibilities and must be kept for at least 10 years. While it may seem like a small task, this declaration is an important step in ensuring that you’re equipped to manage your SMSF effectively and that you’re meeting your legal obligations. If you’re unsure of what signing the declaration entails, it’s always best to seek professional advice.

4. Lodge an election with the regulator
Within the first 60 days, the trustees must lodge an election to be regulated with the ATO. This necessary step ensures that your SMSF receives concessional taxation treatment and is considered a complying fund. This election is irrevocable, so it’s essential to make sure you’re fully informed before making your decision. Without lodging this notice, your SMSF won’t receive the same concessional treatment and could be taxed at the highest marginal tax rate.

5. Open a cash account
The trustee of an SMSF will generally need to set up a cash account so the fund can accept contributions, rollovers and earnings from investments. This account will also be required to pay expenses such as annual supervisory levy, accounting fees, taxation liabilities and importantly, member benefits.

6. Create an exit strategy
An exit strategy can reduce the impact of unexpected events. Strategies may include:
• ensuring all trustees have access to the SMSF records and accounts
• create rules for the fund if unexpected events occur
• make binding death benefit nominations (renewed every three years)
• encourage all members to appoint a power of attorney


Buying an investment property with SMSF and how it works

If you’re considering borrowing or gearing your super into property investment, it’s important to understand the strict borrowing conditions involved. A limited recourse borrowing arrangement (LRBA) allows you to purchase a single asset, such as a residential or commercial property. However, before making any decisions, it’s essential to assess whether investing in property is consistent with your SMSF’s investment strategy and risk profile. Doing some independent research into costs including upfront fees, legal fees, advice fees, stamp duty and any ongoing property management fees is a worthwhile task. Additionally, borrowing can add complexity to your SMSF, so it’s wise to seek advice from a licensed financial adviser with an Australian financial services (AFS) licence.


Key reasons people consider an SMSF

If you are a pre-retiree and have the time, knowledge and capacity, then an SMSF is a good consideration. If you are looking for more control of your finances, an SMSF enables you to invest in a wide range of assets including securities, managed funds, fixed interest investments, as well as residential and commercial property. You can make quicker decisions to better pivot between profitable and losing trends and it provides the benefit of lower ongoing costs.

Before changing over to an SMSF, it is recommended that you seek advice from an experienced financial planner. With their help, you can weigh up the pros and cons of an SMSF and work out if starting one is right for you.



Terms are subject to approved persons only. This information is true and correct as of 30/05/2023.  All of the content above is general in nature and may not suit your personal needs, situation objective & goals.