A Complete Guide on SMSF Investment Strategy, Borrowing Rules, Fees & Setup

If you’re considering investing via an SMSF, the first thing to do is to undertake a review of your current super before deciding on an investment strategy with the transferred funds. The SMSF investment strategy that you employ will depend upon a number of factors, including:

Time to retirement
Risk outlook
Money to invest (ongoing and lump sums)
Taxation

You may decide to invest in shares, bonds, or cash, though increasing numbers of SMSF investors are using the property as their vehicle of choice to provide long-term capital gains and income (which will all be tax free when in pension).

You should also think about salary sacrifice, superannuation benefits, and ensure the SMSF operates within the super laws and SMSF rules.

SMSF borrowing Rules

While it is possible to borrow money as part of the SMSF investment strategy, this must be done by using a Limited Recourse Borrowing Arrangement (LRBA). In brief, SMSF borrowing rules stipulate that the SMSF:

Uses borrowed money to buy a single asset
Cannot use the LBRA to ‘improve’ a purchased asset
The legal ownership of the asset must be held in trust
The SMSF trustees can purchase the asset
The lender only has recourse to the single asset purchased with the assistance of the LRBA

SMSF Fees

The costs levied on your SMSF fund will depend upon the provider, the size of the fund, and the investment strategy and assets in which the fund invests. However, the fees and charges can be divided into various component groups:

Cost of advice
Costs of setting up (e.g. trust deeds)
Running costs (e.g. administration, statutory reporting, and lodgements)
Other costs

SMSF set up

In order to successfully set up an SMSF, you’ll need to firstly prepare, before opening the SMSF, and then finally putting it into operation.

Prepare by discussing your options, what skills and abilities you have and what type of trust will be best for your situation. You’ll need a trust deed written, and detail all the members and trustees.

When the SMSF is set up, you will need to put into action the permitted investment strategy, and then organize any salary sacrifice superannuation payments. You can arrange for your employer to contribute by using ATO forms.

Money from current super funds will need to be rolled in. To operate all of these finances, you’ll need to open a bank account in the name of the SMSF, and all ATO trustee declarations will need to be signed.

When everything is set up correctly, the SMSF is started by executing the trust deed.

Now the SMSF set up is complete: what next?

Once your trust deeds have been executed, the SMSF can accept contributions, borrow money, and invest in line with the SMSF investment strategy. The ongoing administration of the SMSF includes: