The Art of Self Managed Super Funds – What can (and can’t) they be used for

However, although the types of assets a SMSF can invest in are quite broad, there are still exceptions and restrictions as to what you can use them for. If you breach the rules, you may find yourself facing hefty penalties as well as the possibility of losing the asset altogether!

Recently I spoke to a trustee of a SMSF who had just purchased some fine art work. Not only was it good investment he said, but he had also been using it in his business as a great way to decorate his office. What he didn’t know however was that he was in fact breaching superannuation law!

It is therefore extremely important that if you are a trustee of a SMSF that are aware of what you can and can’t do. We try to debunk some of the misconceptions surrounding SMSF purchases below.

Example 1 – Purchasing business premises in your SMSF

John is a mechanic in NSW who owns and operates his own garage. John also has a SMSF of which he and his wife are both members. His friends have told him that he can have the SMSF purchase the property from him and continue to use the garage for business.

He enlists the help of a specialised lawyer and financial advisor to assist him in documenting the process. On this advice, John arranges to transfer the property to his SMSF to form part of his own superannuation benefits, the SMSF pays John the purchase price and he transfers the property. John continues to use the garage by way of a lease to the SMSF.

If you personally own business property in NSW, it is possible for you to transfer that property into your SMSF. Whilst there are strict procedures you must follow in order to do this, it is certainly achievable.

Example 2 – Using a SMSF property as your own holiday house

Steve is a keen skier and while hitting the slopes he finds a residential property which he can rent out for a large profit over the ski season. He and his wife also like hiking and figure that during the summer season they could stay at the property when rental demand is low.

Before bidding for the property at auction they get legal advice and are surprised to find that they can’t buy the property in their SMSF.

While their SMSF fund is permitted to use the house as a rental property, as soon as the members begin to use the house for themselves, they breach superannuation law. This is the case even if the members had decided to pay rent to their SMSF for their stay.

Steve and his wife are fortunate that they got legal advice before entering into the transaction as otherwise it could have been expensive for them to undo the transaction.

Example 3 – Borrowing money to buy and trade shares

A SMSF has purchased 100,000 shares in Woolworths Limited using a bank loan and some of its own funds.

A few months after the SMSF has purchased the shares, the share price shoots up. The trustee of the SMSF is unsure whether to keep the shares or not, so it decides to sell half of the shares to make a quick profit and keep the rest in case the price goes up further. The SMSF is still paying off the loan from the bank.

While SMSFs are allowed to purchase shares, when they borrow funds for the purchase then there are additional restrictions. In this case, this meant that the SMSF could not simply trade the shares like it normally would on the stock exchange and as a result, it breached the superannuation law.

Kells can help with your SMSF transactions and structures

Using a SMSF can offer many benefits but it takes the right advice from the right people to ensure that you get the best outcome.

While we do not provide investment or financial advice, Kells can assist you with SMSF property purchases and advising on loan documents. We can also assist fixing up problems, and previous structuring errors, including transfers of property, changing trustees, lost trust deeds and undoing transactions where a mistake may have been made in contravention of the superannuation law.

Need further information? Contact us on 4221 9311