Most of us have heard about SMSFs, they have been around for many years and Australians have acquired property using this method. This structure has several benefits, but it also has some downsides. As a trustee, you can take advantage of asset protection and tax relief. This article will briefly discuss some pros and cons of SMSFs.
Acquiring Real Estate
One of the primary benefits of having an SMSF is your ability to grow your portfolio by acquiring real estate. If you have set up a self-managed super fund, trustees can apply for SMSF loans to purchase more property in the fund. Although this was not always the case when it came to SMSFs, the law was changed to allow members acquire and hold real estate. The real estate can be commercial or residential property.
Another reason why so many people are choosing to set up SMSFs is due to their cost saving features. It makes more sense to have your own fund, a lot of the larger superannuation funds charge a bigger fee. When compared to other funds, some of the requirements for an SMSF can be more beneficial to certain individuals.
Members have control of their fund; they can opt to include trustees such as friends or family members. When trustees have control of their own projects, many believe they achieve better results. Dealing with a larger fund does not always yield the best results as most of the time there is a weaker return on investment.
Although there are many advantages to an SMSF, it also has some disadvantages. If you hold a property in an SMSF, the asset earnings cannot be retrieved by trustees until they have established a condition of release or retirement. It is not possible to access the equity in one property to use it towards another purchase, but you always have the option of an SMSF loan. A member of an SMSF is also not allowed to buy property from a related party of the fund.
Trustees and member of an SMSF must understand that this type of loan has restrictions. When they set up this structure, it is important to know that it is different in regards to other loans. If a self-managed super fund is audited and there are problems with the fund, the auditor will report his findings to the ATO. If a SMSF structure is for you, it has many advantages.