Money Matters:

Common SMSF investing Mistakes

Self-managed super funds (SMSF) give Australians a number of options to invest for their future.

SMSF can either be simple or involve complex strategies, all depending on how an individual

wants to handle money.

There are numerous rules and regulations in the

superannuation system that members need to abide by.

To ensure that members do not fall for these traps and

that they are making a sound investment, here are

some of the most common mistakes to watch out for.

Property, not Land

A vacant parcel of land may be enticing to some

investors, especially because of the minimal upkeep

responsibility, but the law states that SMSF property investors can only purchase already-built

properties, not vacant lots.

Investors can still explore their options regarding both residential and commercial properties,

but if vacant land is the goal, an SMSF investment might not be the proper route.

Overall Resources

The administration fees of an SMSF will take away any profits or even tap into the contributions

if a member does not make regular large contributions. Aside from the contributions, members

will need to pay for auditing, accounting, tax agents’ fees, ASIC fees for the fund, as well as

investment fees.

Personal and Business Use

SMSFs are meant to be an investment for the future, particularly for retirement. Investors receive

tax concessions for providing for their retirement. Breaking those rules and using the money

early will mean losing those concessions. SMSFs, as much as possible, should only be used for

one’s retirement years, and not to fund personal or business needs.

An SMSF needs to meet the sole purpose test to qualify for the tax concessions normally

available to super funds. This means the fund needs to be maintained for the sole purpose of

providing retirement benefits to the members, or to their dependents if a member dies before

retirement.

Failing to Plan for Death or Serious Illness

Every member should have a strategy in place should

any untoward incident happen, including serious

illnesses or even death. This will help the investors

manage the fund better and to know what to do with

the investments should the primary member die or be

unable to fulfil their duties.

Binding death benefit nominations and reversionary

pensions should be reviewed regularly to ensure all

instructions and wishes of a member will be fulfilled in case of their untimely demise.

It may seem like a ton of work, but understanding the intricacies of self-managed

superannuation funds will only mean good things for an investor’s future.

Resources:

http://www.sentinelpg.com.au/

https://www.moneysmart.gov.au/superannuation-and-retirement/self-managed-super-fund-

smsf

http://www.ato.gov.au/Super/Self-managed-super-funds/Managing-your-fund-s-

investments/The-sole-purpose-test/