Managing your self-managed superannuation funds (SMSF) investments

You need to manage your fund’s investments in the best interests of fund members and in accordance with the law. And you need to separate your fund’s investments from the personal and business affairs of fund members, including your own.

Your Investment Strategy

Before you start making investments you must have an investment strategy. This sets out your fund’s investment objectives and specifies the types of investments your fund can make. Your investment strategy should be in writing and must:

• be reviewed regularly to ensure it continues to reflect the purpose and circumstances of your fund and its members (your review and any decisions made should be documented)
• consider whether to hold insurance cover (such as life insurance) for each member of your SMSF.

Sole Purpose test

Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.

Contravening the sole purpose test is very serious. In addition to the fund losing its concessional tax treatment, trustees could face civil and criminal penalties.

It’s likely your fund will not meet the sole purpose test if you or anyone else, directly or indirectly, obtains a financial benefit when making investment decisions and arrangements (other than increasing the return to your fund).

Ownership & Protection of Assets

To protect fund assets in the event of a creditor dispute, and prevent costly legal action to prove who owns them, assets should be recorded in a way that:

• distinguishes them from your personal or business assets
• clearly shows legal ownership by the fund.

Fund assets (other than money) should be held in the name of either:

• the individual trustees ‘as trustees for’ the fund
• the corporate trustee ‘as trustee for’ the fund.

Restrictions on investments

All investments by your SMSF must be made on a commercial ‘arm’s length’ basis. The purchase and sale price of fund assets should always reflect true market value, and the income from fund assets should always reflect a true market rate of return.

Generally:

• you can’t buy assets from, or lend money to, fund members or other related parties (there are some exceptions to this rule)
• your fund can’t borrow money.

If you have any questions, feel free to ask them in the comment section. We will be happy to answer all your queries.