Viewing posts categorised under: Superannuation
SMSF 101: Investing and Borrowing Funds from a Self Managed Super Fund

SMSF 101: Investing and Borrowing Funds from a Self Managed Super Fund

Superannuation / 14.06.2022

SMSF 101: Investing and Borrowing Funds from a Self Managed Super Fund


Self managed super funds (SMSF) offer a number of different advantages including flexible investment strategies and the ability to borrow from your SMSF.

Self managed super funds allow you to borrow money however with your self-owned super fund, it’s important to be aware of the responsibilities you have as an SMSF owner.

However, it’s important to remember that as a member of a self-managed super fund (SMSF) also serve as trustees. This role comes with rules and regulations. As a member, you are responsible for following all applicable superannuation and tax laws. 

Before utilising your SMSF to purchase commercial or residential property, it is critical that you understand the rules and conditions. One of the most important rules to remember is that your SMSF must only be used for real estate investments. 

While you can use your super to buy a home and get financing, you should always consult with your trusted mortgage broker as well as an accountant or tax advisor before making this decision. 

Read on to discover more about SMSF and the true cost of borrowing funds to acquire a property.

INVESTMENT STRATEGY

Investing in Real Estate through Your SMSF Residential (Residential and Commercial Property)

To buy a property with your SMSF, you must follow the ATO’s rules including:

  1. The property must pass the “sole purpose test,” which states that it must be used solely for the purpose of providing retirement benefits to fund members. 
  2. A fund member’s family member cannot be the owner of the property. 
  3. A fund member or any of their relatives are not permitted to occupy or rent the property. 
  4. A fund member or a fund member’s related parties can lease commercial property for business purposes. It must, however, be leased on a market basis and meet certain criteria. 

In addition to the aforementioned rules, it is recommended that your investment property corresponds to your fund’s investment strategy and risk profile. If you need investment advice – especially self managed super fund investment advice which can get quite complex – it’s best to seek independent advice from a financial adviser who can help you make the right decisions for your financial situation.

SMSF Home Loans

Borrowing money through an SMSF is subject to strict guidelines and very strict rules.

SMSFs must make all home loans with limited recourse borrowing arrangements (LRBA). An LRBA “limits the recourse” of a lender by establishing a separate property trust and trustee outside of the SMSF structure. 

The super fund is responsible for all property income and expenses, as well as loan repayments. If your SMSF fails to comply, the lender will only have recourse against the separate trust property and will be unable to access any remaining super fund assets. 

This type of mortgage involves a slew of considerations and risks. 

Keep the following risks in mind when considering an SMSF home loan: 

  • SMSFs must value all assets using objective and verifiable data. 
  • SMSF loans could be more expensive than other types of property loans. 
  • SMSF loan repayments must be made from the SMSF’s bank account. As a result, you must make certain that your fund generates enough cash flow to meet repayments. 
  • An SMSF property arrangement is difficult to terminate. If the loan documents or contract are incorrect, you may be forced to sell the property, which could result in significant losses for your SMSF. 
  • SMSF property losses cannot be deducted from taxable income earned outside the fund. 
  • Anyone who invests in commercial property and earns more than $75,000 per year is required to register for GST. Thus, this may dramatically increase your property taxes.

Furthermore, if you decide to sell the property, you will be required to pay capital gains tax on the proceeds. While you may also make routine repairs and maintenance, any improvements or renovations are prohibited by LRBA rules. Note that maintenance and repairs alone will not transform the property into a new asset.

These risks highlight the importance of seeking professional advice before purchasing property with a self managed super fund.

If you have a self managed superannuation fund and would like personal financial advice on your investment options, taking out super fund loans and maximising your SMSF opportunities, talk to an SMSF Financial Planner today.

While there are numerous risks associated with using your SMSF to acquire a property, know that there could be benefits you could reap. The important thing to remember is that you must act with guidance and practicality in mind. With the right strategy and knowledge, you can acquire your dream property and make it all a reality and reap the benefits of your self managed super fund.

Through the expertise of a financial adviser in Lismore and Byron Bay, TNR Wealth Management can help you secure your financial freedom faster than you’d expect. Work with us today!

 

Disclaimer

Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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6 Things to Consider When Choosing a Superannuation Fund

6 Things to Consider When Choosing a Superannuation Fund

Superannuation / 07.06.2022

6 Things to Consider When Choosing a Superannuation Fund


Finding a super fund that offers you good value and healthy returns is important for your financial future. 
However, your superannuation becomes even more important when you start planning for retirement.

The government offers tax incentives to help you add extra money to your super, but it’s important to choose the right super fund in the first place to make sure your additional contributions are working hard for you.

Why would you consider changing super funds?

  • If you are concerned about your super fund’s performance and your investment returns
  • If you are concerned about the fees associated with your super fund
  • If you’re looking for an SMSF (self-managed super fund)
  • If you are nearing retirement and need to boost your superannuation fund dramatically!

To help you out, we thought it would be useful to put together a brief article on what you need to think of when choosing a super fund. If this is something that you’re interested in learning more about, read on as we discuss six things you need to consider when choosing a super fund.

Performance of Your Super Fund

The current and past performance of your superannuation fund can make a big difference to your balance when you retire.

A fund that has a track record of strong and stable returns can help you make the most of your money and save more for retirement. It’s also essential to consider your investment options and how your money is invested within your super fund.

  • Is your superannuation in a growth fund or a balanced fund?
  • Is your superannuation invested ethically and sustainably?

Take note that the returns are not guaranteed and will vary but a financial adviser who offers personal advice can help you choose a super fund based on the investment option that is right for you.

Fees of Super Funds

Super funds charge administration and investment fees to cover the cost of managing your account and investing your money.

Some funds charge a set administration fee, while others charge a set percentage fee on your total account balance. Some funds will charge both, but usually, the percentage-based fee applies if you have at least $5000 in your super fund. Some funds will also have an asset-based fee which does not change depending on your account balance or the amount you invest.

Fees vary between super funds so it’s important to understand what fees you are paying and if they can be minimised because ultimately, costly fees will minimise your superannuation balance and your retirement savings.

Additionally, if you are interested in self managed super funds, the fees around this can be quite complex so it’s best to seek professional advice.

Insurance within Super Funds

Many superannuation funds offer insurance cover that you can pay for through your super fund. The types of insurance cover you can purchase through your include:

  • Life cover
  • Income protection insurance
  • TPD (total and permanent disability) insurance

Both the insurance options and prices are something to consider when you choose a super fund. We can help you understand what insurance coverage is available, what it covers, and how much it costs.

Investment: Investing in Your Own Super Fund

When it comes to growing your super, you can choose from a range of different investment options and a personalised investment strategy can help you boost your super quickly.

Besides the employer contributions that are compulsory for you to receive from your workplace, you can also make extra super contributions (as an investment option) to grow the money in your super fund. There are also enormous tax benefits to making voluntary super contributions from your own savings.

However, there are contribution caps and processes you need to follow to ensure your super fund is following the rules and to ensure your investment options are the right ones for your goals.

Seek advice from a professional financial planner who can help you grow your superannuation tax-effectively and help you prepare for a stress-free, financially secure retirement.

Seek Personal Financial Advice to Pick the Right Super Fund

When it comes to helping you choose the best super fund for your specific financial situation, it’s important to compare super funds (including self managed super funds), investment options and future performance. While this may seem like a lot to take in all at once, this information should be enough to help you make the most informed decision possible. If you have more questions, it would be best to consult with a financial adviser to discuss how your superannuation fits into your investment strategy.

Are you looking for a financial adviser in Byron Bay?

TNR Wealth Management always endeavours to provide the most personalised financial advice for every one of our clients.

We understand your super fund is an important part of your financial future and we can help you:

  • Compare investment options
  • Maximise investment returns from your super
  • Choose a super fund that is right for you
  • Feel confident that your super fund will deliver you your dream retirement!

Seek personal financial advice from Adam Wade and the team today – book your complimentary 15 minute chat!

 

Disclaimer

Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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checking papers

What to Know About Defined Benefit Super Funds

Superannuation / 31.03.2022

checking papers

There are two types of superannuation funds available to Australians:

  1. Defined benefit and;
  2. Accumulation funds

Understanding your super fund and considering your options can help you plan for the future financially – especially for your retirement.

What are defined benefit superannuation funds?

A defined benefit fund is a superannuation fund where your retirement benefits are calculated by a pre-determined formula rather than on investment market performance. This means you can have a clear understanding of exactly how much money you will receive in retirement.

The benefits you receive from your defined benefit fund are determined based on your employment details (such as your final average salary or length of employment) – rather than on your super fund’s investment performance.

This can be appealing as you will be entitled to a consistent retirement income stream rather than varied income due to fluctuating market performance/investment risk.

Who is eligible for a defined benefit fund?

Accumulation super funds are far more common in Australia than defined benefit super funds.

This is primarily because not many Australians are eligible to have a defined benefit super fund.

Most defined benefit funds are corporate funds or public sector funds. Many are now closed to new members.

Some of the biggest defined benefit funds in Australia include:

  • TelstraSuper
  • Qantas Super
  • Rio Tinto Staff Super Fund
  • Commonwealth Superannuation Scheme Fund (CSS)
  • UniSuper
  • Gold State Super

Defined Benefit Funds vs. Accumulation Super Funds

With an accumulation fund, your super accumulates over time from compulsory super contributions from your employer and any other contributions you make. Your super fund invests your money for you so this is how it can continue to grow over time – through investment returns depending on market performance.

With a defined benefit super fund, your retirement benefits are determined by a specific formula instead of being based on investment returns.

Are defined benefit super funds better than accumulation funds?

As stated previously, most defined benefit funds are not taking on new members.

If you are thinking of leaving a defined benefit fund, consider seeking personal financial advice.

Some defined benefit funds are very generous and can provide more benefits than accumulation funds, so make sure you’ll be financially better off. If you leave, you can’t rejoin.

Different fund types provide a variety of advantages and disadvantages. Knowing what kind of super fund you belong to will help you make more informed super savings decisions.

While a defined benefit plan may appear to be impressive now, it’s always best to athink long-term and to ensure you maximise your retirement income streams. 

Seek personal financial advice for your defined benefit super fund options in retirement

Are you in need of retirement advice or assistance managing your defined benefit super fund?

TNR Wealth Management’s financial advisers in can help you secure your family’s future. Backed with accounting and audit experience for over 115 years, we are dedicated to building long-term, mutually beneficial relationships with our clients.

People Also Asked:

Q: What happens to a defined benefit fund in the event of death of a member?

A: If a member who receives income from a defined benefit fund dies, the income stream will revert to a death benefit income stream.

This death benefit income stream will be a percentage of the member’s income stream. From 1 July 2017, the transfer balance cap of $1.6 million was enforced. This means that a death benefit paid after this date can’t be retained in the accumulation phase and must be paid as a death benefit income stream or as a lump sum from the super fund.

Q: What are the different defined benefit options?

A: Upon retirement, you can choose to have your retirement benefits paid as:

  • a lump sum
  • a lifetime defined benefit pension; or
  • a combination of these two options.

Q: Which defined benefit income stream option should you choose?

A: You’ll need to consider your retirement goals and objectives to determine which defined benefit option is right for you.

While a lump sum payment may be tempting to pay off debts, the increased life expectancy of people since defined benefit schemes were established (most in the early 1900s), means you could comfortably service any outstanding debts such as your mortgage, plus live a comfortable lifestyle with the lifetime pension option.

Of course, other factors will come into your decision such as your age and overall financial position, so you should seek professional advice from a financial planner before you make any decisions about your retirement income.

Q: What are the pros and cons of each defined benefit withdrawal option?

A: Each defined benefit withdrawal option has pros and cons.

Perhaps the biggest potential benefit of choosing a lump sum payment is the freedom you have in deciding how that money is used. For example, you might find you have more investment options.

The major con of choosing the lump sum payment option is the tax implications.

The key benefits of choosing the lifetime pension include consistent tax-free income during your retirement. With today’s increased life expectancy, a lifetime pension may also be a more reliable form of income if you’re in good health and expect to live well into your twilight years.

Choosing the right superannuation products is important, so seek the advice of a qualified financial planner to understand the right defined benefit fund for you.

For more information or to speak to our Financial Advisers, call us on 02 6621 8544

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
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