Setting up an SMSF

Hi @CosmicTrevor,

Don't get me wrong I would never invest in any of the above mentioned non-income producing assets. Those who follow me in the Other Assets thread know that my investing approach inside and outside Super is all about dividend income. I have often argued against the capital drawdown method as the sole source of creating income. Some would suggest it's relies on the greater fool theory.

I was just putting those examples forward out of curiousity. The only reason I raised BRK.B was I interepreted your post as suggesting you thought a stock that didn't pay a dividend was a reckless investment. I wouldn't invest in it but many others see it as anything but reckless. So apologies for my misunderstanding.

As you stated at the end of the day it's not what us laypeople think but what the ATO and more importantly the courts decide. Fortunately our SMSF is awash with income and will never hold land, lumpy assets such as property, leverage, non-income producing assets, collectibles and the like. That said, we're currently challenging the ATO over the rejection of an unusual situation relating to deductible Personal Contributions involving the 10% rule as detailed here:
Super Contributions and the 10% test (1)
and
Super Contributions and the 10% test (2)

Cheers

 

Thanks guys for contributing very useful info.

In simple words-one must hold an asset in their SMSF that produce income from the start e.g. rent from a resident and commercial property or shares (which gives dividend) to show compliance with the rules.

Am I right?

So in my case we have been playing with an idea of investing in a land and assuming once the land is developed and developers are releasing stage by stage we can sell on higher price.

But this is an assumption based on the history initially the land will not generate any income therefore will I be breaching the rules of SMSF?

Thanks

 

@CosmicTrevor did say:

@Newfast if this is what you really want to do then seek advice from a SMSF specialist.

However why complicate things in an already increasingly complex environment. I personally believe in keeping investments in the SMSF simple and blindingly obvious they're compliant with the legislation. It will also keep your fees lower.

 

No. A SMSF could own non-income producing assets. But many issues to consider.

 

I'm not sure if there are any lenders left that will lend to a SMSF wishing to acquire an off-the-plan property. You'd want to check this point with your broker before getting too ahead of yourself. Most of them (if not all) now expect the property to be at least 2 years old.

 

Nope, that's not what I'm saying. I'm saying the trustee of the SMSF must provide for the retirement benefit of its members. If you can prove that holding a non-income producing asset and then on-selling for a profit or improving said asset (such as land) and then generating income is being done solely for the benefit of the members in their retirement then you shouldn't come unstuck. On the flip side of this, if it was felt that you purchased such an asset in an SMSF for the purpose of providing a non-retirement benefit for the members then you might be challenged by your fund auditor and/or the ATO. What might be an example of this? Maybe you buy a non-income generating asset and it is clear from the outset to a 'reasonable person' it was merely a more tax effective way for the members to invest pre-retirement - you might be asked to prove otherwise. Again just my thoughts, please don't interpret this as unequivocal.
One does not set up an SMSF and then wonder what to do with it. An SMSF should be the by product of professional financial advice that meets your objectives.

 

No need to apologise I understand your point completely. I've always been a 'show me the income' kind of investor rather trying to value something on its potential - I guess that's why I'm not a fund manager or property developer!

 

No issue on the face of it with funds owning assets that are not income producing.

If there was I would not see all the mining companies funds invest in which is now worth a total of $1.

The issue would be if the trustees purchased for other reasons other then for the benefit of the SMSF.

Ie purchasing land in a small holiday spot which makes a good camping site during the summer months with the family.

I as the auditor can not and would not comment on the trustees choices in investments. I would be there all day if I did that.

I would have questions if the purpose of the investment appears not to be for investment but maybe lifestyle or I can not see how the fund will pay its bills.

 

100% agree. I see some big funds that follow this and they do very well, their funds are uncomplicated with great returns. The members could live off the tax refund alone.

It would be how I would run my SMSF, if I had one.