Self Managed Super Fund

Hi there everyone,

My wife and I have been trying to make the right decisions financially over the last few years for ours and our kids future.

We have currently got 3 investment properties, and am now looking at the option of a SMSF. I've been trying to get accurate information regarding them and thought I'd ask this forum for your thoughts, ideas and expertise. Here is the basic info I think I understand. Please let me know if I've got any of this wrong:

Firstly: I'm 41 years old, my wife is 35.

- you need to have $180 - $200k in my current super before I can look to having a SMSF? Not sure why this amount is set.....

- you can buy investment properties through your SMSF. Rental income and capital gains are not eligible to tax within it?

- can only sell or take money out of the SMSF when you're 60yrs old?

- can have up to 4 people in the same fund to consolidate your funds to bring it up to that magic 200k?

- all funds come with income protection for all its members? Not sure about this one. Maybe I still have to get my own but it's tax deductible.......? Clarification please.

I have a couple of queries regarding the above:

- if I get my dad (over 60yrs old) to come into the fund with us, then because he is over 60, can he buy and sell property on behalf of the fund without being subject to capital gains or is CGT and income tax from rental income calculated as a percentage (one third because only 1 of the 3 of us in the fund are eligible to those benefits)?

- how much does it cost to set up a SMSF?
- what are the ongoing costs of SMSF?
- do you have to have a current super fund in order to get a SMSF or can you simply set one up and transfer your $200k bank savings into it?

Many thanks.

 

@hudbry - Lots of specific questions which should be answered by a licensed advisor (so take my opinion with a glass of scotch/grain of salt).

$200k is arbitrary but as others have pointed out having any less (even this little) can make the fund unviable and better returns may be gained from an industry fund.

The SMSF pays tax on income earned (rent/dividends/interest) and contributions by members.

Members have a % of the fund based on their account balance so assets are jointly owned and held in trust by the SMSF ie they aren't an individual asset. If a claim is made on the fund eg your father wants to withdraw his funds and go on a world trip and put all his money on #2 in the fourth at Randwick on the weekend, then unless the SMSF has sufficient cash reserves to pay him out the fund will need to liquidate the assets - his portion may be tax free if he meets the conditions of release but possibly not for anyone else in the SMSF.

Seek specific advice (estate planning, financial planning, legal and accounting).

 

Thank you so much for that. Much appreciated .
Is that even at the age of pension age?

 

You have a lot of questions. And a licensed financial product advisor should be engaged.

The costs of a SMSF vary depending on what you do. If you ask on the forum some people will give personal experiences of cost. And that is a better option that professionals being percieved as inducing you to open a fund.

However their is no minimum to set a fund up. Some people have developed a rule of thumb as to a good level so that the SMSF cost is comparable to a SMSF.

If you deal with a licensed financial product advisor beware of conflicts and make sure you ask for details of all costs of the proposal - direct costs and indirect costs. Some people only quote direct costs which are low and the indirect costs are massive.

Your Dad needs to be over 60 and retired to enjoy the tax free status of assets in pension phase. And this is if his fund value is under a certain amount. And beware of age pension rules.

Financial product advisors are good at sometimes good at age pension stuff. So is Centrelink (and free).

 

We've moved our super to Smsf at the end of last year and we borrowed 60% from a big 4. we found that Smsf for property is highly regulated and getting worst. The weight of paper work to get it setup and running and conform to regulations could crash us literally. If you are going to do it, like the people from above have said seek a well qualified and experienced professional to do this.
It is quite expensive to setup and high maintenance. Our loan conditions dictates that we need to pay it off in 15 years which means huge monthly P&I payments. The other challenge is to get the loan. Just recently Westpac and Commbank (st george and bankwest too ?) closed its doors on smsf lending. I am not sure who still does it.

 

The answer to all of these questions is either 'no' or 'that is not the case'. SMSFs can have up to 6 members - not sure if this new law has passed yet.

 

Interesting.
Do they also stipulate what type of mortgage you can have and if you're allowed offsets against them?

 

Wow, I would have thought the lenders would have preferred lending to SMSF.
Anyone know of any other lenders that don't?

 

Thank you.

 

SMSF presents a significant risk for lenders. Laws and regulation are under heavy review. Many lenders simply don't want to be caught up in this.

The type of mortgage is dictated by the lender and can vary depending on the type of loan. For residential 25 or 30 years is the norm. For commercial properties 15 is standard but there are a few that will go to 20 or even 25 years.

 

no, they cannot use our other mortage or asset as a security. It should stand up as a sound investment by itself and it's inside a non recourse trust. that means even if we go bankrupt no one else can access to it. Hence it's not worth the trouble for banks. The 15 year loan period was also a result of that, because the longer the loan, the more risk for the bank.

 

My property is residential on 15 years and we can't change it to longer term when we asked. We having been using Westpac and BT. Are you sure it can be 25 or 30 years now?

 

I see .
Were you restricted to principle and interest only? Could you get an interest only one with an offset option?

 

no Interest only, no offset. high interest too.

 

So you had to put down a 40% deposit? Was that another stipulation from the lender?

 

Hmmmmmm .
This is interesting .
What sorts of rates were they offering?
Would you go with s SMSF again!?

 

yes that was the max amount.

 

don't know what rate on top of my head. I don't think its worth the trouble now especially with the very limited lenders if there are still any.

 

I think before you go and see a FA, you should read up as much info as possible on the online/net. Not sure if there is a SMSF for Dummies but those books are very informative. Otherwise read up on esuperfund (free online) so you have a certain knowledge before taking the next step

 

The lender CAN and most likely will seek a personal guarantee by the Trustee Directors / members. The lender may be limited in recourse to the SMSF solely to the respective mortgage asset however if that leaves a shortfall the members will still be at risk of making good the difference.