SMSF trustees have the freedom to invest as they choose to grow their retirement savings, which is why it is vital that they check in on their investment strategy regularly. Maximising your retirement nest egg depends on how well your investment strategy functions at different phases in your working life. This is why your investment strategy should shift according to your changing financial circumstances. A new job, fluctuating markets, changes in tax laws or your retirement drawing closer may mean it’s time to switch up your investments.
Here is a checklist to get you started.
Map your risk profiles
Consider circumstances including risk, diversity, liquidity and member’s circumstances
Take out insurance for members
Confirm all fund investments comply with super laws and are allowed under a trust deed
Property is a common investment option for SMSFs, however, the ATO has a number of regulations SMSF owners need to be wary of. The ATO is particularly concerned with those using SMSF assets to invest in property in a way that is detrimental to retirement purposes.
To ensure you do not breach provisions of the Superannuation Industry (Supervision) Act 1993 (SISA), here is a breakdown of the ATO’s common regulatory concerns:
Whether arrangement amounts to your SMSF are being made to purposes outside of the sole purpose test (referred to as a collateral purpose).
Whether your SMSF meets operating standards such as record-keeping, ensuring assets are appropriately valued and recorded at market price, and keeping SMSF assets separate from members’ assets.
Whether the arrangement includes the SMSF acquiring assets from a related party.
If the arrangement features the SMSF borrowing money and meets borrowing provisions.
Whether the SMSF has contravened the in-house assets by exceeding the level of in-house assets allowed.
Cases of illegal early release of superannuation when SMSF arrangements do not meet relevant payment standards.
Also keep in mind that you cannot improve a property or change the nature of a property while there is a loan in place. While you can look to make additional contributions to your SMSF to speed up the loan repayment process, you will be precluded from making further contributions to your SMSF if any outstanding loans in your super balance exceed $1.6 million.
In the case that any of the ATO’s regulatory concerns apply to you and your SMSF’s involvement with property investment, confirm your situation and report your circumstances to the ATO. Additional regulatory matters regarding income tax such as non-arm’s length income (NALI) provisions as well as GST need to be reported as well.
