I can invest in anything I like in my own SMSF
No - Not Always!
Although as the Trustee of your SMSF you set your fund’s Investment Strategy and decide where to invest your fund’s monies, there are restrictions in place to safeguard that money that are imposed by the Superannuation Legislation.
One of these restrictions is the SOLE PURPOSE TEST – this is a fundamental requirement for all super funds to follow to ensure that the Fund’s sole purpose is for the provision of retirement benefits to members and their beneficiaries (in the event of death).
Because of this requirement there are some things that your SMSF just cannot do, for example invest in vintage cars that are driven by you on the weekend, buy a house to put your parents in, lend the SMSF monies to your small business at a great interest rate ….
Whilst the above examples are black and white, there are many grey areas in investing, particularly where there is a related party involved in the investment.
It is always best to seek proper advice before you enter into an investment in your SMSF, as there are significant tax and personal penalties that the ATO can apply when the Sole Purpose Test or other investment provisions are breached.
I HAVE AN ACCOUNT BASED PENSION SO IT’S OK NOT TO WITHDRAW MY MINIMUM PENSION BENEFIT FOR THE 2018 YEAR AS I CAN ALWAYS MAKE IT UP LATER
IT’S ACTUALLY NOT OK, there can be serious tax consequences for the fund if you do not withdraw your minimum pension this year. These include:
- No tax exemption – the SMSF may not be entitled to the tax exemption under the superannuation legislation in respect of income (and net capital gains) derived from pension assets for the entire income year, and
- No more transfers of assets in specie to count toward your minimum pension – from 1July 201 7, the fund can no longer transfer assets in specie that count towards your minimumpension. Note that asset transfers in specie are still allowed, but the minimum pension must be paid in cash.
I can have my residential premises held by my fund, as long as I also run a business from home.
No - Not really!
You are allowed to own your business property in your fund, and there may be many advantages to the business and the fund to do so, but that doesn’t mean a home business can be owned by the fund!
There are many issues to consider in this scenario and you will need specialist advice, however the general rule is that you cannot live in a property that is owned by your fund.
If a penalty is imposed on me as a SMSF Trustee for a breach of legislative requirements, I can have it paid by the fund?
No – any penalties are to be paid personally.
The ATO can impose penalties on Trustees ranging from $2,100 to $12,600 for breaches of legislation, such as lending money to a member or relative.
However, this penalty must be paid from personal funds.
Superannuation is a whole different language!
With the use of lots of acronyms and references to legislation, superannuation can certainly sound like a different language. I will use this segment for the next few months to try to explain some of these terms in simple English.
There are restrictions on the way your fund can deal with related parties. A 'related party' of your fund includes:
all members of your fund
associates of fund members, which include
the relatives of each member
the business partners of each member
any spouse or child of those business partners
any company the member or their associates control or influence
any trust the member or their associates control.
standard employer–sponsors, which are employers who contribute to your super fund for the benefit of a member, under an arrangement between the employer and a trustee of your fund
associates of standard employer–sponsors, which 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 relative of a member means any of the following:
a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse
a spouse of any individual specified above.