Probably the most exciting development in the SMSF industry was the Government allowing the SMSF to borrow to buy an asset.

This leverage allows the trustees to acquire assets which the fund may not have acquired in the past.

New rules apply to limited recourse borrowing arrangements entered into on or after 7 July 2010.

A borrowing entered into by an SMSF on or after 7 July 2010, will satisfy the new rules contained under new S67A where;

• The money is or has been applied for the acquisition of a single acquirable asset;
• The acquirable asset is held on trust so that the fund trustee acquires a beneficial interest in the acquirable asset;
• The fund trustee has a right to acquire legal ownership of the acquirable asset by making one or more payments after acquiring the beneficial interest;
• The rights of the lender or any other person against the fund trustee are limited to the rights relating to the acquirable asset;
• The acquirable asset is not subject to any charge (including a mortgage, lien or other encumbrance) except as provided for in paragraph (d) or (e).

While new opportunities arise for trustees the rules are complex and we recommend you see a specialist SMSF advisor before accessing the new rules.  What’s more, trustees should ensure their investment strategy allows the fund to borrow and more importantly so should the deed.

If you have any questions please feel free to contact us .

Investment Restrictions

As the Sole purpose of the SMSF is to provide retirement benefits for its members the SMSF is prohibited from:

• Loaning or providing financial assistance to members or a relative
• Borrowing (other than in limited circumstances as above)
• Purchasing assets from members unless:
  • The assets are Listed Securities ie shares in Woolies or similar
  • The asset does not exceed 5% of the total fund assets
  • The asset is Business real property

The sole purpose also prevents members from enjoying a “current benefit” from the assets of the fund. ie a great holiday property on the beach or jewelry for personal use.

While the trustees can invest in precious gems under certain circumstances, the members couldn’t have it set into jewelry that is worn.

What else can a SMSF invest in? Below is an example of some of the asset classes that the trustees of a SMSF can invest in:

• Shares
• Derivatives
• Currency
• Options
• Property and Property funds
• Commercial and residential property
• Precious gems
• Precious metals
• Art work
• Other collectibles

See Also:

• Wealth Creation Plan
• Protect Your Assets
• Costs of Maintaining
• SMSF Audit
• SMSF and Property