Current as of August 2014
As the trustee of the Fund, you have the power to make investment decisions. Investments must be for the ‘sole purpose’ of providing retirement benefits for the members of the Fund. The Fund must also formulate an investment strategy and ensure the investments are in line with the strategy.
The rules are there to ensure you do not invest in risky or inappropriate investments. There is a need to ensure you maintain your investments so they are there for your retirement and you do not then have to rely on a government pension instead.
A SMSF can generally make investments in most assets, apart from artworks or collectibles and the specific examples below. They must be done at ‘arm’s length’ and on commercial terms such as full market value. Income received from an investment must also be at the true market rate of return.
The Superannuation Industry (Supervision) Act 1993 (SISA) does prohibit certain types of investments:
- Cannot lend money or provide any financial advantage to a member, a relative or associate of a member
- Cannot borrow except in limited circumstances (limited recourse borrowing arrangements for things like property are one of these exceptions)
- Must limit investment in, or loan to, ‘related parties’ to 5% of the market value of the Fund
- Cannot buy assets from a member or a relative or associate of a member except for assets listed below
Section 66 of the SIS Act does however provide a list of assets that can be acquired from a related party including:
- Business Real Property
- Listed Securities
- In-house Assets
- Widely Held Unit Trusts
- Non-Geared Entities
Importantly as a trustee of a SMSF, you are required to ensure that all assets are held in the correct title of the SMSF and kept separate from any assets held by you personally.
If you have any questions don’t hesitate to contact us to discuss.
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.