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Self Managed Superannuation Funds

“SMSF can now borrow to purchase Investment Property”

Self Managed Superannuation Funds or commonly known as “SMSF”

The establishment of a SMSF is appealing to more and more Australian’s every day with an
estimated 950,000* Australian’s being a member of a SMSF. This has been growing at over 1,000 new SMSF’s being established each week. The huge attraction to SMSF’s has been put down to the fact that a SMSF can borrow funds to purchase an investment property as an asset within the Super Fund.

*In September of 2011 the number of Australian individuals in a SMSF = 850,643.

What is a SMSF, Self Managed Superannuation Fund?

Superannuation is a tax structure not an investment but its prime purpose is to hold investment assets in a tax effective environment to provide for retirement. A SMSF is a smaller fund structure created to service generally from 2 and up to 4 members. In most cases it is family, close friends or business partners that set up a SMSF rather than utilising a larger APRA Fund which are designed & allowed to service mass numbers of investors.

“A SMSF is a separate entity & expands your ability
to purchase property”

What is the advantage of a SMSF, Self Managed Superannuation Fund?

The key difference and many see as the advantage is that a SMSF is you as trustee have a high level of control of your investment choices. The SMSF allows the decisions on risk and return, diversity of asset choice and extremely important to work to your own retirement plan so thus it provides a great degree of control to the trustee. Basically the choices are in your hands and not being determined by a larger corporate entity. The compliance and adherence to legislation ultimately falls back on to the trustees of the SMSF so this must be planned for by commonly engaging professionals to remain compliant to the SIS Act & ATO rules of operation for a SMSF.

The large APRA funds have professionals with a wide range of knowledge on investments and legal areas which for most SMSF’s you will need to outsource and/or take guidance from the given professional required for the service.

Can a SMSF borrow to purchase an investment property? YES
(The property & purpose of the purchase must comply with the SIS Act & ATO legislation)

Lenders have to be very considerate to the risk level associated with providing funds for a SMSF investment property due to the fact the loan must be provided must be non-recourse. This means lenders will generally want to see a 30% (plus costs) input of funds from the SMSF in the property leaving the loan level to no higher than 70% of the value of the property. These levels will differ from lender to lender and unfortunately the interest rate that is generally applied to this type of facility is higher than that of a standard residential property.

Between the deposit, rental revenue the property provides and your contributions to the SMSF the lender will determine should this be an acceptable risk to provide the SMSF a non-recourse loan for the SMSF to acquire the asset.

Getting a SMSF set up & ready to invest?
What are the steps in getting the SMSF established and operational:


Every SMSF must have a trust deed and many administrators and lawyers have standard deeds that can be used or adapted by trustees.

A trust deed is a legal document that sets out the rules for establishing and operating the SMSF. Together with the superannuation laws, they form the fund’s ‘governing rules’ and detail the powers, duties and responsibilities of the fund’s trustees and the rights of the members.


Trustees must consent in writing to being appointed (SIS s118) and confirm that they are not disqualified (SIS s120). The trustee must retain these records for at least 10 years. All trustees need to sign and date the trust deed and ensure it is properly executed according to state or territory laws.

Trustee declaration

A new trustee must sign a declaration within 21 days of becoming a trustee to state they understand their duties and responsibilities as a trustee. The declaration does not have to be lodged with the ATO but must be retained by the trustee for ten years.


Trustees apply to be regulated online via the Australian Business Register at or by completing the ABN registration for superannuation entities (NAT 2944) form and lodging it with the ATO.

Electing to be regulated

For the SMSF to be a complying fund and receive tax concessions, trustees must elect for the fund to be regulated and comply with the super laws.

Obtaining a TFN and ABN

A TFN and an ABN are allocated to all SMSFs that register with the ATO.


Once the fund has an ABN, the trustees can open a bank account in the fund’s name. The bank account will form the hub of the financial activity of the fund. It will: Receive contributions and rollovers Make payments for investment assets according to the investment strategy Pay fees, levies, taxes, insurance premiums and other expenses Receive earnings from investments and the proceeds of asset sales Make benefit payments to members.


Members should apply in writing to join the fund and will provide necessary personal details such as date of birth and their TFN.


Now that the fund structure, trust deed, bank account and member records are in place, the first contribution can be made and the SMSF is formally is in existence. A trust relationship requires a trust deed, trustees, trust property and beneficiaries (the members).

The fund can now accept rollovers from other funds and members can consolidate all their superannuation in one place.


Among the other SIS covenants, trustees are required to formulate and give effect to a properly structured investment strategy that must consider the circumstances of the members and the objectives of the fund as well as:

Risk and return of investments
Diversification of investments
The liquidity of the fund regarding future payments
The ability of the fund to meet its liabilities.


SMSF trustees will normally appoint professionals to help manage their fund. They should go through a selection process in determining a suitable organisation and have an agreement, terms of engagement or contract confirming the arrangements. Outsourcing standards apply (SIS s31) for APRA regulated funds.

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