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SMSF Series: The Boring Stuff You Need to Know...

We are here to hold your hand the whole way, however it is important to know what you are getting yourself in to...

Running an SMSF means a lot of legislation and compliance. We have compiled some information for some light reading...

Sole Purpose Test

Your superannuation balance will be rolled into an actual bank account that you have full control over. Yes! You can actually withdraw the money.... BUT, you need to know that you can only utilise the cash into your SMSF account for approved investments and things relating the those approved investment. There is a very thick rule book that sets up all the rules and regulations for running your own SMSF however we advise all our clients, if you want to do something, just call us and run it by us first. As you've probably seen elsewhere during

your research, you can purchase things such as property, artwork, vintage or collectable vehicles as well as all the usual stuff like shares, managed funds, bonds and term deposits. There is a very big rules in the SIS Act, called 'Sole Purpose Test' that essentially says you can only invest (ie. spent) in things for the sole purpose of your retirement. So basically you can't gain any benefit from the asset now.

From the rule book....

'If you, or any party, directly or indirectly obtain a financial benefit when making investment decisions and entering into arrangements it is likely your fund will not meet the sole purpose test.

One of the main ways we work out if an SMSF has contravened the sole purpose test is to look at the character and purpose of your investments. Working out the purpose for which an SMSF is being maintained requires looking at all of the events and circumstances relating to the SMSF’s maintenance.

When investing in collectables such as art or wine, you need to take care to make sure that SMSF members are not granted use of or access to the assets of the SMSF in contravention of the sole purpose test. The most common breaches of the sole purpose test are:

  • making investments that offer a pre-retirement benefit to a member or associate

  • providing financial help or a pre-retirement benefit to someone at a financial detriment to your fund.

Contravening the sole purpose test is very serious and may lead to trustees facing civil and criminal penalties.'

What this means:

You will have a regular bank account for your super cash...You can't go out and buy a new car, or use your SMSF cash to buy your groceries. Nor can you take holidays in a property owned by the SMSF.

Everything you do with your super fund money must be for the sole purpose of providing for your retirement.

Related Party Acquisitions

Another common question we get from clients is - 'Can we purchase on own investment property off ourselves?' The answer is no! You can't purchase a residential investment property off yourselves or any other related party.

Here's what the rule book has to say...

You cannot acquire assets from your fund from a related party of your fund. However, there are limited exceptions to this rule if the asset is:

  • a listed security (for example, shares, units or bonds listed on an approved stock exchange) acquired at market value

  • business real property acquired at market value

  • an in-house asset, but the level of your fund’s in‑house assets does not exceed the threshold for SMSFs of a maximum 5% of total fund assets, or is an asset specifically excluded from being an in‑house asset.

A related party of a fund includes all members of your fund and associates, and all standard employer‑sponsors of your fund and their associates.

An associate of a particular member of an SMSF includes the following:

  • every other member of your fund

  • the relatives of each member

  • the business partners of each member

  • any spouse or child of those business partners,

  • any company a member (or the members or their associates) controls or influences and any trust the member (or the members or their associates) controls.

Associates of standard employer-sponsors include:

  • business partners and companies or trusts the employer controls (either alone or with their other associates)

  • companies and trusts that control the employer.

A standard employer-sponsor is an employer who contributes to a super fund for the benefit of a member, under an arrangement between the employer and the trustee of a fund.

Business real property generally relates to land and buildings used wholly and exclusively in a business.

If business real property is used in a primary production business, such as a farm, it can still meet the test of being used wholly and exclusively in a business, if an area of land, no more than two hectares, contains a dwelling that is used for private or domestic purposes. However, the main use of the whole property cannot be for domestic or private purposes.

What this means

You can't buy an asset (a property, artwork etc) from yourself or any other family member, unless it is a commercial property, which must be purchased at market value.

It is also a requirement that your SMSF has a full set of Financial Statements and SMSF Tax Return completed every year! As Accountants, we do this on your behalf. It is also important to note that your super fund will also be audited every single year also by an independent auditor. Again we will fully arrange and liaise all of this on your behalf however it's important that you understand what you're getting yourself into.

Due to the very nature of SMSF and that it is very tightly regulated, we make sure you understand right from the beginning that you need to keep all the records, documentation and paperwork necessary for us to complete your financial obligations on your behalf. Again, we provide you with a folder set up for filing and ensure our team is available to assist you every step of the way!

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