Self-Managed Super Fund Rules and Restrictions

As with any superannuation fund, Self-Managed Super Funds are tightly regulated. This offers great protection, especially for the commercial and retail superannuation offerings, but also introduces limits on just what you can do with a Self-Managed Super Fund.

This matters, as compliance with all legislation, is crucial to maintaining the fund’s effectiveness as a retirement vehicle. If the fund is deemed non-compliant, a fund loses its tax concessions and earnings are taxed at the highest rate, adding considerable costs to the fund overall.

The first rule that is crucial to adhere to is that the fund must only be used for the purpose of providing retirement provision for its members. That must be followed at all times, and for trustees making such investment decisions, the ‘Sole Purpose Test’, used to ensure that each investment choice is made to benefit the fund alone, should be applied every time.

There are several investment restrictions that can be considered in the Sole Purpose test that are also restrictions required by law on fund investments. These include:

• Fund assets must be kept completely separate from personal investments and assets at all times. Member holdings must never be combined with fund holdings at any point.
• Assets of the Self-Managed Super Fund cannot be used by a member or any party related in any way to a member. This includes residential properties but does exclude business property, although proof of market rate commercial arrangements may need to be provided. For instance, a residential property owned by the fund cannot be used by relatives of a member, even if they were paying market rate rents.
• The fund is not allowed to lend to members or anyone unless under very specific criteria.
• With the exception of listed shares or commercial property, a Self-Managed Super Fund cannot purchase assets of any kind from a member or any person or entity related to them.

In addition to these restrictions on the assets a Self-Managed Super Fund holds, they must also comply with several pieces of legislation, including the SIS Act, tax obligations and all rules regarding superannuation.

In addition, each year, the Self-Managed Super Fund must be subject to an independent audit, and they are required to submit the appropriate financial statements and accounts. These are all duties that trustees are legally obligated to carry out, and together represent a commitment that anyone considering a Self-Managed Super Fund must make.

The requirements and restrictions can create problems for some investment strategies, which is why the Self-Managed Super Fund is not an answer for every investor or situation. Being aware of these, and identifying aspects that would be compromised by a specific plan, such as investing in property with a plan to let to children or grandchildren in the future, is part of the due diligence needed when choosing the investment vehicle for retirement.

For the full breakdown of Self-Managed Super Funds check out our article: The Self-Managed Super Fund and why you should have one

We welcome you to give our team a call to discuss your investment goals and objectives.

You can call Walker Capital Australia on +61 2 8076 2210, and we’ll see how we can help you achieve your investment goals.