Nowadays, many Australians are choosing to control more of their finances by creating a Self-Managed Superannuation Fund (SMSF) instead of totally relying on the investment decisions of the trustees of a fund. As an SMSF trustee, you have a wide range of choice when in comes to making investments such as direct investments (which include shares, cash, income securities, and bonds), direct property (houses, villas, units, offices, shops, land), managed funds (retail, wholesale, domestic, international), private unit trusts, a business (non-related to the trust), business properties, and lastly non-traditional assets (such as collectibles).
Adherence to the rules is imperative, so if you’re decided to make individual investments, please consult your trust deed first. Once you have become more familiar with the document, it will be easier to go through with making investment decisions. When you feel as though your proposed investment is in accordance with the trust deed, you now need to make sure that the investment fits with the fund’s investment strategy, which has been set up by the members of the fund as well as yourself, while being advised by a SMSF Specialist AdvisorTM. The investment strategy should be fluid in order to change with different circumstances and opportunities, yet it should definitely include the objectives of the fund, a risk profile, liquidity needs, and intended investments.
Having control of the fund is incredibly important, as you can continue to invest while in retirement. Other providers constrict investors into receiving cash and fixed interest during retirement age, creating the possibility that savings may run out in their lifetime, exacerbated by the risks of inflation and changing interest rates.
There are strict guidelines associated with borrowing. A fund has to be provided through a Limited Recourse Borrowing Arrangement (LRBA), or else it cannot borrow money to invest. Also, a fund cannot purchase your personal assets from you, nor can it be used to lend money to members (or their families), nor can it provide assets for security or personal borrowing.
Investing in equipment and leasing it your own business is permitted, but the process contains many roadblocks, it may be best to avoid this scenario. Similarly, if you wish to buy a classic or vintage car with the SMSF, you would need to prove that it is an investment for retirement and not present enjoyment. If you were caught driving one of the cars, even for a routine check-up, it could be used in an argument that you were receiving current benefits from the investment.
Property investments are allowed, as long as it is not a home for personal use. Within this rule, it is included that members cannot stay in the invested property or rent it to family. To make sure that you are dealing with the invested property ethically, use a real estate agent to manage the property until you are able to do it properly yourself.
Coins are also a proper investment as long as they are not displayed. If when assessed the coins are defined as collectibles, make sure you comply with specific regulations in regards to the investment. Wine is treated similarly- you can invest in the wine, but are not allowed to drink it until retirement age, nor can it be stored in the homes of any person involved in the trust (including any other buildings they own on their private residence, such as storage facilities, etc.).
Investing in art is another option, yet it cannot be displayed at home. It can, however, be rented out to different galleries or businesses. Exotic assets are not very stable, but if you have special knowledge about a particular investment, then you may be able to make the investment work. However, be aware of trying to make investments to profit your current business ventures.
The above notes are factual only. If you require personalised financial advice for your SMSF, please contact us here so we can connect you to a qualified specialist.