How Does A Self Managed Super Fund – SMSF Works?
If the thought of setting up a Self Managed Super Fund (SMSF) has entered your mind at some stage, it’s probably best you get the ball rolling sooner rather than later. Recent changes to the lending criteria for Self Managed Super Funds have suggested that the trend is shifting towards making it harder for the average Australian to use this investment option. Also known as SMSF’s, this method of utilising your superannuation to purchase a property has proven extremely popular in the last few years with many Australians opting to using their superannuation to purchase more than one property.
How does one use your superannuation to purchase a property? In recent years the legislation surrounding the rules of Superannuation have been upgraded allowing for Australians to be able to transfer their super into a Self Managed Super Fund and use the funds as a deposit towards the purchase of a property. The ability to leverage ones superannuation to purchase an investment property is extremely popular. Setting up a Self Managed Super Fund in the past has been a difficult task, over the years the team at the Australian Property Planners Association have managed to make the exercise a streamlined and effortless task.
Our team of in-house solicitors, financial planners, accountants and finance professionals ensure that task of setting up a Self Managed Super Fund is effortless and affordable. An SMSF does however come with legal responsibilities and ongoing involvement in the management of the fund, hence the term Self Managed Super Fund. Having a team that understands the process and ensures all parties are involved, engaged and updated is vital to the success of the strategy. The steps involved in purchasing a property using super are as follows:
1. Conduct an initial assessment meeting with a licensed financial planner to determine if the type of superannuation you currently have is able to be transferred to a SMSF.
2. Once you have determined that this is possible, you need to obtain a Statement of Advice (SOA) from a financial advisor to determine if using your super is indeed the right strategy for you. The statement of advice will stress test variables like, what happens if you don’t have a tenant, what happens if the rates go to 7%, what happens to the investment if you lose your job? The SOA will also calculate all the costs involved in owning the property and take into account the rent and super contributions the property will receive, the calculation will determine how quickly the property will be debt free.
3. If the statement of advice suggests that this strategy will work, the SMSF fund is setup.
4. ABN number for the fund is requested.
5. Bank account in the name of the fund is setup.
6. Rollover request forms are submitted to the current superannuation companies requesting the transfer of funds.
7. A loan application is submitted to the lending institution.
8. A bare trust is setup.
9. A property is selected and a contract is completed.
10. Settlement of the property is completed.
11. Rent from the property is transferred to the SMSF bank account.
12. Yearly tax return is completed for the SMSF.
All this been said, setting up and maintaining an SMSF is a big responsibility, the fines for breaching the laws of managing a superfund are severe. Always use a licensed professional with professional indemnity insurance to provide advice and manage the fund.