Self-Managed Super Funds (SMSF) are always a hot topic of conversation with new clients, but rarely do we end up recommending them.
With the ongoing market volatility, and the production and current distribution of yearly Superannuation statements likely showing negative returns, no doubt it will be one of the most common questions yet again.
What drives these decisions? Our love affair with Property? The most recent yearly ATO report1 confirmed 15% of all assets within SMSF are invested in property.
While we have produced many articles before about the benefits and responsibilities (see the end of this article), we thought we would share some case studies that our Financial Advisers have encountered.
1. Borrowing to buy a Property, then sell at a loss
- Clients started a SMSF with a small balance with a previous Adviser/Accountant relationship.
- Arranged a loan to purchase property in a low capital growth location on the Mid North Coast.
- Cost of property upkeep, mortgage, and fund costs despite rent and contributions meant the account balance was going backwards.
- Clients were forced to sell the property at a loss and repay the loan. The account balance was less than what the SMSF started with, now at $150,000.
- Total loss was approximately $150,000 over four years.
2. Acquired Carpark adjoining office space owned in the SMSF
- Existing commercial property acquired with loan facility 15-20 years ago.
- Property is leased back to operate their business, rental income paid from business to SMSF.
- Acquired only access road and adjoining carpark in recent years with cash within the fund (only 1 buyer).
- Completed draft DA and development proposal.
- The whole asset will now be sold once our client retires.
- Early estimates show this strategy will provide a financial benefit in excess of $1,000,000 with no capital gains tax payable.
3. Setting up the SMSF, no consideration of the future
- An SMSF was established based on advice by the Accountant as the husband wanted to do ‘different’ investments (other than those traditionally found on retail super platforms) such as commercial property.
- All trustees and members were made aware of their responsibilities.
- The wife was not at all interested and went along with establishing the SMSF.
- Unfortunately, the husband passed away some time down the track and she was left to deal with the SMSF and investments she did not understand.
- The SMSF structure needed to be restructured due to the SMSF being established under individual trustee structure.
- It proved to be a time consuming and costly exercise for the Accountant and family to work through, dealing with the ATO and Centrelink at the same time.
- When we compare this to the passing of a spouse who owns a personal super/pension – there is no comparison of how much more time consuming and costly it is to unwind an SMSF when the passing of a spouse is taken into account.
In summary, a SMSF can be a very complicated vehicle to accumulate wealth, while offering features around lending, taxation strategies and acquiring assets outside of the standard options available.
If you are unhappy with your most recent Superannuation statement and are looking for guidance, come and chat to one of our Superannuation Specialists. We have offices located in Erina (CCFPG), The Junction (NFPG) and Sydney CBD (SWA)– your first appointment is complimentary, so you have nothing to lose.
Read more about SMSFs here:
A: Early estimates are not a guarantee that should the client employ such a strategy, that they too will be provided with a financial benefit in excess of $1,000,000.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.