Mr Taxman
Change the way you feel about taxes.
Get informed and discover what the taxman doesn't want you to know.
Sharing it with Australia, Mr Taxman is a regular Woman’s Day columist and TV finance commentator
  • click to visit Mr Taxman on Twitter
  • click to visit Mr Taxman on FaceBook
  • rss

Do I have enough for my own SMSF?

Dec 12, 2012

I am considering purchasing an investment property (residential unit) through my self-managed super fund. I have heard about the tax concessions available through the SMSF, but with superannuation of just over $100K, I’d like to know if the costs involved in setting-up the SMSF (and running it) will be worth going ahead with. 

Whilst SMSFs can be great, they are not ideal for everyone.  Before you establish one you should think carefully about some of the following issues:

  • if you want to purchase property via a SMSF, the initial establishment cost can be up to $3,000;
  • the administrative obligations may be onerous.  They include arranging an annual audit of your fund, keeping appropriate records and reporting to the ATO on the fund’s operation;
  • the annual charges for administration, accounting, tax and audit range can be expensive and between $2,000 and $3,000 for an average sized fund;
  • you need to understand the responsibilities and requirements of being an SMSF trustee as you are responsible for ensuring the fund complies with its trust deed and superannuation laws; and
  • you need to manage the fund’s investments in the best interests of fund members including for the sole  purpose of providing retirement benefits and keeping them separate from the personal and business affairs of fund members.

There is no rule of thumb as to how much that you need to have in super to cover the costs of running a SMSF, but I feel that a minimum of $150,000 is required to make it a worthwhile exercise.

As fund balances grow, property is becoming a very popular asset class in super funds.  According to the Australian Taxation Office, real property within SMSFs in has grown from $15.2 billion in 2003/04 to $61.3 billion in September 2010.

Whilst super funds can gear up to 75% (dependent on the borrower’s restrictions), consideration should be made for falling asset values and restrict borrowing limits to no more than 50%.  This means that if you have $150,000 in super, you should only be looking at property worth no more than $300,000.

Aside from having enough funds to be able to buy a property, some other issues to consider before owning real property in a SMSF include:

  • you cannot live in the property owned by your SMSF for private purposes;
  • commercial properties can be leased to a related business entity but only if there is a written lease in place;
  • establishment and ongoing annual costs regarding administration of a SMSF will rise with having a property;
  • whether your super fund has an adequate diversification of assets
  • consideration of any liquidation of assets required should a member retire or die.

This article first appeared in the August 2011 issue of Your Investment Property Magazine www.yourinvestmentpropertymag.com.au. Copyright Key Media Pty Ltd 2011.

Tags: Accountant SydneyPropertyRetirementSMSFSuper

Author: Mr Taxman

Comments

Post a New Comment

Media Availability

Are you interested in booking Mr Taxman for a speaking engagement or requesting his viewpoints for an article?

comments-rhsLatest Comments

  • "I'm so happy sharing this wonderful story of my marital life and the greatest person i have ever known. I'm Shania Lane, 41 and from Manteca California, USA. I'm not happy to say that i lost my..."

    By: shania at Jan 23, 2018 9:29PM

    Post: Marriage

  • "I work as a Landscape Labourer ad travel from the Sunshine Coast to Brisbane most days during the week, however sometimes I am sent to different sites during the same day. From the city to Bribie..."

    By: Eli Rowe at Jan 23, 2018 1:32PM

    Post: Claiming car expenses

  • "Private Lender Avit Investment Authority. Greetings to you by ADIA. We are a France-Paris based investment company known as Avit Development Investment Authority working on expanding its..."

    By: Mrs Rose Williams at Jan 23, 2018 1:24PM

    Post: The Full Cost of Motoring in Australia

  • "Hi I have made a deposit of R18000 on binary trading platform and traded for 2 months I was able to make a profit of $80 000 how much tax should I pay in order to withdraw my current balance?"

    By: Bongani Wiseman Gininda at Jan 20, 2018 12:42PM

    Post: Foreign currency trading

  • "Mr Taxman. So in this particular instance when a there is a trade copier service or some automated software that actually does the trading can a tax effective structure be put in place. If so..."

    By: Greg at Jan 20, 2018 8:44AM

    Post: Foreign currency trading