Self-managed super funds require no minimum value.
THE Cooper review into superannuation has stated it wants to have members as the focus for superannuation. Members must realise that under the sole-purpose test superannuation must be used for retirement purposes. The other superannuation tests are designed to reinforce the sole-purpose test.
Q We have our own SMSF and our investments are only in shares. We would like to include property in our investment portfolio. Being self-employed we are now facing a cash-flow problem and wondered if it would be possible to sell an investment property to our super fund at market rates, based on an independent valuation?
A If the property is a residential property you would not be able to sell it to the super fund even if you get an independent valuation. There is an investment rule that bans super funds buying investments from members unless they are publicly traded securities or business real property.
If you have made a capital gain on the property, and your net rental return is extremely low, you should consider selling the property.
Some of the excess cash from the sale could be used to help your current cash-flow problem, while the rest could be contributed as a deductible contribution to reduce any tax payable on the gain.
Q My wife and I have about $60,000 each in our own super funds. I operate my own business and my wife works three days a week for her employer. We are both 42 years old with one child. I would like to set up our own super fund but have been told we need $250,000 in super before we can set up a self-managed fund. The fees to operate an SMSF would not be an issue as I see a lot more flexibility in running it.
Can we set up an SMSF and secure a portion of either a commercial or residential property with the $120,000 and then borrow the balance independent of the SMSF? The SMSF would have a balance of direct shares and the property.
A The figure you quote of $250,000 is an arbitrary figure used to compare the annual compliance cost of a SMSF with that of externally managed super funds. An average cost for a small SMSF is $1500; this represents a management expense of 0.6 per cent for a fund with $250,000.
At present there is no minimum that a person must have if they want to set up an SMSF. In your case you appear to understand that an SMSF will not be your cheapest option but, if you believe having control over your own super outweighs this extra cost, there is nothing stopping you setting up an SMSF.
If you wanted your SMSF to invest in a property you could do a joint venture with it. This would involve the property being registered in the joint names. If you had to borrow for your share of the cost you could not use the property as security for the loan.
Q What happens if a member of an SMSF becomes medically incapacitated for whatever reason? Can the other trustees act on behalf of the incapacitated member?
A In the event of a member/trustee becoming incapacitated only their legal personal representative can take over for them. The trust deed for the super fund should also be checked to see if it states that certain actions must be taken.
Email questions to max@taxbiz.com.au
Self-Managed Superannu-ation Funds: A Survival Guide, by Max Newnham, is available in book stores.
