Wed 24 Jan, 2018

5 Things You Can Buy With Your Superfund, and 5 Things You Certainly Can’t

Commencing a self-managed superfund gives you total control over what investments your?superfund buys. That means, if you’re a real estate aficionado, you’re free to grow your wealth?with property investments. The same goes for ethical investors – an SMSF gives you the?freedom to invest in whatever you like. The main rule being that your investments’ sole purpose?must be to grow the value of your superfund for retirement. What would you buy with your fund?balance if you had the freedom to manage it yourself?

Here’s 5 things you can buy, and 5 things?that don’t quite hit the mark:

5 Things Your SMSF Can Buy

An investment property

Yep, you can use your superfund to get into that tough property market. You can use your fund?to buy a property outright, or put down a loan and borrow to bridge the gap – the technical term?is a Limited Recourse Borrowing Arrangement. The sole purpose of buying the property must be?to grow your fund’s wealth, so you must rent it out to the general market and invest the rental?income back into your fund. You can’t vacation in the property, live in it yourself, or rent it out to?anyone you know.

A commercial premises for your business

Your fund can buy commercial property, too, but in this case you can use it for your own?business operations. The key thing to understand here, is that you are not buying the premises?– your fund is. As such you must lease it from yourself at an ‘arm’s length’ arrangement, by?paying rent at market value.

A retirement home

Alright, we said no loopholes. But this is sort of a mini loophole, if you choose to see it that way.?Your fund can buy a residential property as normal, and rent it out to generate income to your?superfund. When you reach retirement, you can buy the property from your fund – remember,?you didn’t buy it, your fund did. That does mean you’ll still have to pay transfer taxes and duties
– like stamp duty.

A business

Yes, your fund can buy a business. Whether you want to buy a law firm or a dog grooming?centre, technically the ATO says you can. But, as with every investment – and we’re sorry for?sounding like a broken record here – it must meet the sole purpose test. If your business?provides any other value to you other than generating income for retirement, it’s a no no. Play?your cards right and you could enjoy some tax benefits and build income for your retirement pot,?but blurring the lines of sole purpose could prove problematic. Things like overdrafts may also?get complicated.

Bucket-Loads of Kombucha

Alright not exactly. But you can buy shares in business of your choice. While a regular?superfund invests your fund in shares of their choice, an SMSF lets you invest in whatever?businesses you want. Whether you think Kombucha is the next big money-maker or you’ve?dreamt of owning a slice of the Tim Tam fortune since you were a biccie-loving tot, with your?SMSF you can go nuts.

5 Things Your SMSF Can’t Buy

A sweet ride

Ok, so it’s no secret that cars tend to plummet in value the second you put your foot on the?accelerator. But, even if you found a sweet vintage ride that was going to appreciate in value,?you can’t really buy it with your superfund. In theory, it is an investment – yes. But you’d have a?rough time convincing the ATO that your purchase was for the sole intention of growing your?superfund. You would have to rent the car out in order to generate income, and you – or anyone?you know – would be prohibited from driving it, even for maintenance purposes. So, while you?technically could, we’ll bet you the hands-off approach wasn’t exactly what you had in mind.

A lifetime supply of Vegemite

You can’t have your Vegemite on toast and eat it too. Unless you could prove that there was?going to be a global shortage of Vegemite very soon, and buying out the nation’s stocks was?going to make you very rich, it’s a no no from the ATO. Oh, and even if that happens (let’s hope?it doesn’t!), you couldn’t eat it yourself.

Your first home

Before you ride your superfund balance all the way to the bank, remember that you can’t live in?a property you buy with your superfund – even if you paid to rent it out. There are no loopholes?here either, unfortunately. You can’t sublet with a friend, as you cannot lease the property to?anybody connected in any way with any members of the fund.

A handy tip: don’t try to beat the?ATO. It won’t end well.

A home for a friend or relative

Like we said, no loopholes here. You can’t buy a property for your partner, children, parents or?friends with your superfund. If your tenants are found to be connected to a fund member in any?way, you could end up in hot water.

Additions to your stamp collection

Whether you collect stamps, Beanie Kids, model helicopters, sporting memorabilia or garbage?from your favourite footy player’s bins, you can’t really add to your collection with your?superfund. The same rules apply with all investments – the sole purpose must be to grow the?value of your superfund. In short, you can’t get any enjoyment from your investments! It sounds?tough, but that’s really the essence of it. You can’t use your superfund to transform yourself into?the Barefoot Investor. Reserve those investments for your regular income.

If you’re interested in finding out more about how a self-managed superfund can work for you,
contact Squirrel Super now.