Setting up an SMSF – What do you need to consider?

Setting up an SMSF can be complicated.  Not getting it right can materially affect your financial situation and retirement plans.

The first question you need to be sure about is whether an SMSF is the right fit.  Seeking specialised financial advice can help you determine this answer. Some considerations include:

Low balances

You must ensure you have an appropriate superannuation balance before considering an SMSF. While a low balance can be a red flag, it is not always a barrier to entry.  Establishing an SMSF with a small balance may not be in your best interests. This is because SMSFs tend to be more cost-efficient with larger balances. Therefore, before rolling over your superannuation balance to an SMSF, you should establish and justify that by doing so you are likely to end up in a better position in retirement.

Motivation

You must also understand your motivation for establishing an SMSF. The most common motivation SMSF trustees indicate is control. Control of an SMSF allows individuals to have a wide range of investment choice, flexibility and engagement with their superannuation. However, superannuation law is complex and you need to ensure your ambitions are allowed under the law and will be able to achieved in an SMSF.

Costs and time

SMSFs incur a wide range of costs in establishment and the day to day running of the fund. Ensure you are across the estimated establishment, accounting and audit costs that will be incurred by your SMSF. Speak with your advisers so you are across all other incidental costs, which unlike large super funds generally occur with fixed rates rather than as a proportion of your balance.

SMSFs also require dedicated attention from trustees which will take time out of your daily life to manage. Understanding from the outset your legislated responsibilities and obligations before establishing an SMSF is important.

Establishment process

Once you have decided that an SMSF is right for you, the process of establishing the fund can commence. A Specialist SMSF adviser is the best person to help you with this process which generally involves choosing a trustee structure, selecting a trust deed, completing the ATO registration,  opening a unique fund bank account, getting an electronic service address and arranging for rollovers to the fund to occur.

Investment Strategy and Insurance

Upon establishment you must also create an investment strategy which must be regularly reviewed.

Your investment strategy should be in writing and must consider:

•             Diversification (investing in a range of assets and asset classes).

•             The liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses).

•             The fund’s ability to pay benefits (when members retire) and other costs it incurs.

•             The members’ needs and circumstances (for example, their age and retirement needs).

•             Whether to hold insurance in your SMSF.

Property investment

It is also common for SMSF trustees to be motivated by investing in property when establishing an SMSF. You should be sure that any investment in property, particularly when gearing is involved, is appropriate for your circumstances. Holding properties in an SMSF can also require some complex structures to ensure the law is being followed and specialist advice may be needed before making an investment choice. A lack of diversification, low balances and inappropriate property investments can have a detrimental impact on your retirement savings.

How can we help?

If you are considering an SMSF, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements and circumstances in more detail.

Is your SMSF adequately diversified?

SMSF trustees need to truly understand diversification and better diversify their portfolios.

The benefits of a well-diversified portfolio are numerous but the key ones that SMSF trustees should focus on are the benefits of mitigating volatility and short-term downside investment risks, preserving capital and the long-run benefits of higher overall returns. By spreading an SMSF’s investments across different asset classes and markets offering different risks and returns, SMSFs can better position themselves for a secure retirement.

However, did you know that 82% of SMSF trustees believe that diversification is important but in practice many do not achieve it?

This is because half the SMSF population cite barriers to achieving diversification. The top being that it is not a primary goal for SMSF trustees, and they believe they have a lack of funds to implement it.

Furthermore, 36% of SMSF trustees say they have made a significant (10%) asset allocation change to their SMSF over the last 12 months. This demonstrates that SMSFs may not be actively restructuring their portfolio on an annual basis to respond to changing market conditions.

Another clear problem regarding diversification is the amount of SMSFs with half or more of their SMSF invested in a single investment. SMSF trustees say they primarily invest in shares to achieve diversification in their SMSF, while just a quarter say they invest in at least four asset classes to achieve this.

The bias and significant allocation to domestic SMSF equities conversely may highlight the fact that SMSFs are not adequately diversified, especially across international markets and other asset classes.

So what can you do?

Some of the steps you, with the help of an SMSF Specialist, can take to diversify your retirement savings and control your investments in a disciplined and planned way include:

  • Ensuring there is a clear and demonstrable retirement purposes in the choices you make.
  • Ensuring you have an investment objective and a strategy to achieve that objective in place.
  • Reviewing your portfolio and assessing it against the objectives you have set as often as you feel is necessary.
  • Minimising concentration to any one asset class.
  • Ensuring your Australian share portfolio is sufficiently diversified.
  • Considering the benefits of geographic diversification.
  • Ensuring your cash allocation is appropriate.
  • Considering the benefits of exchange traded funds, listed investment companies and other digital investment platforms that allow low cost access to different markets.

Always remember to document your actions and decisions, as well as your reasons, and keep them as a record in order to demonstrate that you have satisfied your obligations as a trustee.

Given the importance of having an appropriately diversified portfolio and its impacts on quality of life in retirement trustees ought to consider professional assistance in managing this important aspect of an SMSF.

How can we help?

If you need assistance with diversification with your fund, please feel free to contact us so that we can discuss your particular circumstances in more detail, or refer to the SMSF Association Trustee Knowledge Centre.

Family Trusts

Family Trusts

Family Trusts are used for holding assets or for running family-based businesses. It is referred to as “inter vivos discretionary Trust” which means that an individual establishes a family Trust throughout their lifetime to maintain or manage investments, assets and to support beneficiaries including the family members of the individual.

There are several advantages to having a family Trust, they are beneficial for protecting the assets from going bankrupt or from business failures. The Trustees own the assets in the Trust instead of the beneficiaries therefore, they cannot be utilised to pay off creditors of the beneficiaries, unless they were invested in the Trust with the intention of paying off the creditors.

They are also beneficial to protect the family assets in context of divorces and marriage breakdowns. When an event involves property settlement in terms of law of a family, the assets that are invested in the family Trust fund are likely to be excluded from the property settlement than the assets which are directly held by the individual. Family Trusts can also ensure that challenges of Will are avoided considering any of the assets in the Trust will not be considered as part of the deceased’s estate. It can also be considered as a motivator to retain assets within a family group for a family business, example a family farm. In a Trust that is fully discretionary, the Trustee makes the decision of who gets to access the Trust assets and is responsible for splitting the assets. In Australia, the Family Law Courts considers the Trust assets owned by the Trusts that are discretionary and the spouses are the beneficiaries, as sources of finance and include this into their judgments regarding splitting the assets during divorce.

In Australia, most of the working individuals aim to live a comfortable retired life which is natural. Almost all Australian working individuals create their retirement funds through superannuation, the discretionary Trust plays can play an efficient role in supplementing this earning. The Trust does not have limits to contribution unlike the funds of superannuation. They do not even have any restrictions on where the funds are invested, neither do have any limits to borrowing. Throughout one’s life, they can flexibly give and take from the Trust as they deem necessary which enables an increased financial flexibility.

A large number of Australian businesses run on discretionary Trusts, especially when they are family businesses. The beneficiaries of this Trusts include the immediate or extended family of the individual. The beneficiaries do not hold any interest or rights in the property or assets of the Trust unless the Trustee distributes the assets as they see fit to the beneficiaries.

Tax Purposes can also be a reason Trusts are advantageous when the Trustees have a higher tax bracket, and the beneficiaries fall under a lower one. The effective distribution income to beneficiaries through marginal rates that are low will result in a low amount of tax payment.

If you would like to know more, please contact us.

How much money do you need to start an SMSF?

New research released

SMSFs are not for everyone, but for those individuals where an SMSF is entirely appropriate for them, the benefits can be considerable.

In the context of ongoing public debate regarding the appropriate minimum size for an SMSF, new research has been provided to provide insights into the true costs of running an SMSF. And the research shows SMSFs are cheaper to run than many people may think.

The findings allow SMSF trustees and potential SMSF trustees to compare appropriate estimates of fees for differing SMSF balances with institutional superannuation funds (commonly referred to as APRA regulated funds).

The costs include establishment, annual compliance costs, statutory fees and some investment management fees. Direct investment fees have been excluded.

What does the research tell us?

SMSFs with less than $100,000 are not competitive in comparison to APRA regulated funds (SMSFs of this size would generally only be appropriate if they were expected to grow to a competitive size within a reasonable time).

SMSFs with $100,000 to $150,000 are competitive with APRA regulated funds (SMSFs of this size can be competitive provided the Trustees use one of the cheaper service providers or undertake some of the administration themselves).

SMSFs with $200,000 to $500,000s are competitive with APRA regulated funds even for full administration. (SMSFs above $250,000 become a competitive alternative provided the Trustees undertake some of the administration, or, if seeking full administration, choose one of the cheaper services).

SMSFs with $500,000 or more are generally the cheapest alternative regardless of the administrative options taken. (For SMSFs with only accumulation accounts, the fees at all complexity levels are lower than the lowest fees of APRA regulated funds).

This research highlights that SMSFs with a low complexity can begin to become cost-effective at $100,000. This is a significant departure from what many had believed to be the case. For simple funds, $200,000 is a point where SMSFs can become cost competitive with APRA regulated funds or even cheaper if a low cost admin provider is used. With the proposed expansion to six member SMSFs, we may see many more take up this option at this threshold.

Comparing 2 member funds

From a cost perspective, the real benefit of an SMSF is when it achieves scale in balance and this can occur when members pool their superannuation savings.  The below comparison can be used to grasp the ranges you might fall into.

Combined BalanceSMSF Compliance Admin (2 members)APRA regulated fund Low fees (2 members)
$50,000$1,689$503
$100,000$1,690$863
$150,000$1,691$1,216
$200,000$1,693$1,566
$250,000$1,694$1,942
$300,000$1,696$2,301
$400,000$1,699$3,013
$500,000$1,703$3,725

But it’s more than cost

When determining whether an SMSF is right for you, your analysis must go further than just a simple comparison of the costs versus APRA Regulated Funds. It should also factor in your retirement and income goals and whether you have the desire, time and expertise to take on the role of an SMSF trustee. It’s also worth factoring in SMSF members may not receive the same level of protection in the event of theft or fraud that members in APRA regulated funds do.  

2020-21 Federal Budget Update – Government spends on jobs

The 2020-21 Federal Budget is all about jobs, jobs and jobs. COVID-19 has resulted in the most severe global economic crisis since the Great Depression. This Budget provides an additional $98 billion of response and recovery support under the COVID-19 Response Package and the JobMaker Plan.

The centrepieces of the Budget are a new JobMaker Hiring Credit for businesses and lower taxes for individuals.

Pleasingly, the Government committed to their election promise that there will be no adverse tax changes to the superannuation system. In addition, for the first time in a number of years, there were no measures specifically relating to SMSFs in this year’s Budget.

However, the Government did announce a ‘Your Future, Your Super’ package to address APRA superannuation fees and poor performances. The four measures in this package are outlined below:

‘Stapled’ superannuation accounts – A new default system

From 1 July, existing superannuation account will be ‘stapled’ to a member to avoid the creation of a new account when that person changes their employment. Employers will be required to pay super contributions to their employees existing superannuation fund if they have one, unless they select another fund.

A ‘YourSuper’ portal

The Australian Taxation Office will develop systems so that new employees will be able to select a superannuation product from a table of MySuper products through the YourSuper portal. The YourSuper tool will provide a table of simple super products (MySuper) ranked by fees and investment returns.

Increased benchmarking tests on APRA funds

Benchmarking tests will be undertaken on the net investment performance of MySuper products, with products that have underperformed facing stringent requirements. Products that have underperformed over two consecutive annual tests prohibited from receiving new members until a further annual test that shows they are no longer underperforming.

Strengthening obligations on superannuation trustees – Large APRA funds

By 1 July 2021 super trustees of large APRA funds will be required to comply with a new duty to act in the best financial interests of members. Trustees must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests.

This will affect those large APRA funds to ensure they are spending in the best interests of the members, rather than SMSFs.

In addition to previous COVID-19 relief, there are also further economic payments for pensioners

The Government will provide two separate $250 economic support payments, to be made from November 2020 and early 2021 to eligible welfare recipients and health care card holders. 

This includes the:

  • Age Pension
  • Disability Support Pension
  • Carer Payment
  • Family Tax Benefit, including Double Orphan Pension (not in receipt of a primary income support payment)
  • Carer Allowance (not in receipt of a primary income support payment)
  • Pensioner Concession Card (PCC) holders (not in receipt of a primary income support payment)
  • Commonwealth Seniors Health Card holders
  • eligible Veterans’ Affairs payment recipients and concession card holders.

Personal income tax changes brought forward

The Government will lower taxes for individuals by bringing forward its ‘stage two’ tax cuts that were due to start in July 2022.  This means from 1 July 2020, the 32.5% tax rate will apply to incomes up to $120,000 (previously $90,000).

In 2020–21, low- and middle-income earners will receive tax relief of up to $2,745 for singles, and up to $5,490 for dual income families, compared with 2017–18 settings.

Other announcements and changes

  • A deficit for 20-21 of $213.7 billion (11% of GDP).
  • Gross debt is $872 billion (44.8% of GDP).
  • A JobMaker Hiring Credit will give businesses incentives up to $200 per week per employee to take on additional young job seekers

Additional $14 billion in infrastructure projects across Australia over the next four years.

COVID-19: Negative returns – looking for the positive?

Despite well formulated investment strategies and appropriate investment advice, no trustee could have foreseen the impacts of COVID-19 on financial markets globally. Whilst history suggests that a strong recovery is likely within a relatively short period after large market corrections, it is still too early to know the impact of COVID-19 on members’ retirement plans.

If your SMSF has experienced some negative returns, there may be an opportunity to ensure member benefits are restored in the most tax effective manner. Particularly if members are approaching retirement and do not have the luxury to wait for markets to recover.

A member’s superannuation interests comprise two components — the tax-free component and the taxable component. Under the proportioning rule, when a superannuation benefit is paid as either a lump sum or as a pension, the trustee must split the benefit between these two components. Members cannot select their tax components.

If a member has an accumulation interest, their tax-free component is based on a prescribed formula. All residual benefits, including all investment earnings, then make up their taxable component. By the same token, any negative returns reduce their taxable component until it is exhausted before notionally reducing the tax-free component.

Where the value of a member’s account falls so that it is less than their prescribed tax-free component, any notional or temporary reduction in the dollar value of a member’s tax-free component can be recouped.

In essence, whilst a member’s balance remains less than their prescribed tax-free component, they are able to restore their tax-free component. This presents an opportunity to reclassify what would ordinarily be treated as taxable component as tax-free, until a member’s prescribed tax-free component is restored. For example:

  • Investment earnings can be treated as a tax-free component.
  • The net amount of concessional contributions made based on the annual cap and any unused carried forward cap can be treated as a tax-free component.
  • Any taxable benefits rolled over by a member from another super provider can be reclassified as a tax-free component.

Once a member’s prescribed tax-free component has been restored, as trustee, you must revert to treating the above-mentioned amounts, as part of a member’s taxable component.

Once a member has restored their tax-free component, they may be eligible to nominate to start a pension. Where they opt to start a pension, as trustee, you must apply the proportioning rules to work out the tax-free and taxable components of their pension. All benefits subsequently taken from the pension will be taxed based on the same proportion, which does not change.

Get the timing right and a member can essentially ‘lock in’ the components of their pension with a high tax-free component, ensuring that all future earnings are classified as tax-free component. This has significant estate planning benefits where they potentially have adult children beneficiaries.

If a member is only eligible to start a transition to retirement income stream (TRIS) the proportioning rules operate in the same way. Although the TRIS would not be in retirement phase and enjoy a tax exemption on income generated by the pension assets, all earnings and capital growth will increase the tax-free component of the pension proportionately. The alternative of retaining benefits in accumulation would see all earnings only increase the member’s taxable component. This opportunity is also not restricted by the $1.6m transfer balance cap limit and the member can enjoy a higher proportion of tax-free pension payments, even where they are under 60.

As a trustee you need to be aware of the different tax components that make up members’ benefits to ensure that member records are accurate and that the correct amount of tax is withheld.

It is also important for member’s to be informed to ensure they do not make the wrong decision. For example, should a member decide to roll-over their entire benefit before recouping their prescribed tax-free component, the proportioning rule will be triggered, and their reduced tax-free component as calculated on the day of the rollover will be fixed. Their decision permanently reducing their prescribed tax-free component. 

SMSFs and Property

This is an area that we are asked about regularly, because of course, the benefits of being able to use your Fund money and have the investment in an entity with tax concessions.

However, the ATO and SMSF Auditors, pay special attention to these types of investments as it is very easy to go wrong and create severe compliance and tax consequences.

It is important to also note the Administrative Penalties that apply to the Trustees, this does not include Civil, Criminal or Compliance enforcement:

Penalty per unit $210 (as of 11th August 2020)

Examples of penalties:

  • Lending or giving financial assistance to members or relatives               60 units  $12,600
  • In-House Assets (this includes trust distributions not paid to the SMSF prior to 30th June of the following year it relates too).                                                                        60 units  $12,600

Please also note that this is per Trustee, if it is a Corporate Trustee then it is just the one entity, if it is Individual Trustees, then it is each person.

When property development is done correctly, by an SMSF, it can be a legitimate investment, BUT the ATO’s concerns relate to developments that are not solely for superannuation purposes, i.e. Part IVA.

When there is an arm’s length breach, such as excessive/reduced income and expenses, the income of the asset is taxed at 45%, including Capital Gains.

Items such as the Trust Deed and Investment Strategy also must be reviewed.

 There are various ways for property to be within an SMSF, and I have outlined some strategies below:

Residential / commercial development

1. Invest Directly

This is the simplest way.

Advantages – Simple, concessional tax treatment on income and future capital gains (in particular in pension phase – tax free!! – Ensuring you stay under $1.6million balance from 1st July 2017)

Disadvantages – requires a significant commitment of capital to acquire the asset; need to be conscious of ongoing liquidity requirements of the fund and its members (e.g. pension paying phase).

2. Tenants in Common

An SMSF has the ability to co-invest with another investor, such as an individual, trust, another SMSF, etc.  The important thing to note here is that the property must be unencumbered, that is, no charge (loan) can be placed over the asset as security for any borrowings that another investor may require.

Advantages – Allows for other investors to participate when SMSF does not have sufficient capital; concessional tax treatment on part of the income and part of the future capital gains (in particular in pension phase – tax free!! – Ensuring you stay under $1.6million balance from 1st July 2017).

Disadvantages – requires a significant commitment of capital to acquire the asset; need to be conscious of ongoing liquidity requirements of the fund and its members (e.g. pension paying phase).

3. Unit Trust (geared/ungeared)

This is a more typical structure for an SMSF to co-invest with another investor.  The SMSF would subscribe for units in the unit trust (as would the other investor(s)).  There are several different and important rules to be aware of with unit trust arrangements.  These include:

–          If the trust was established before 11 August 1999, these ‘golden’ unit trust have a different set of rules to be applied to them.  Simply, the fund can borrow money and place a charge over the trust asset(s) without being classified as an in-house asset and be in breach of superannuation law requirements.

–          If the trust was established after 10 August 1999, these unit trusts must be ungeared (some exceptions – see below), with no charge to by placed over the assets of the SMSF.  Regardless of the investments within the trust (including residential property), there is scope to effectively transfer the ‘value’ of the external units across to the SMSF without breaching the in-house assets rules (SIS Act).  Stamp duty considerations still need to be considered on a case-by-case basis for unit trusts that are ‘land rich’, but a unit trust does have an advantage over tenants in common to bypass stamp duty for some transactions.  For business owners, using a ungeared unit trust arrangement has been a popular strategy as it permits a ‘recycling’ strategy for contributions into the fund and then for the fund to subscribe for units and the individual (or other entity) effectively redeeming existing holdings (and getting the cash back).  Small Business Concessions can apply towards CGT issues on the transfer into the SMSF for business owners operating (or previously operating) from these premises.

–          As stated above, there are some exceptions for the ability for a current day unit trust to borrow and place a charge over the property.  Superannuation law in this regard looks at the level of control or influence one may have in determining whether the asset is an in-house asset.  That level of control does not just relate to a specific individual; a wide net is cast through a definition of Part 8 Associate which covers broadly family, relatives and companies where the member sufficiently influences of controls that entity.  Control exists where:

  • a group relating to that entity has a fixed entitlement to more than 50% of the capital or income of the trust;
  • The trustee of the trust/majority of the trustees is accustomed to, or is under an obligation to (either formal or informal), or might reasonably be expected to act in accordance with the directions of a group relating to that entity; or
  • A group relating to the entity is able to remove or appoint the trustee/majority of the trustees of the trust.

Therefore, where there is no control, the unit trust can invest in property, gear the trust and place a charge over the asset as security.  This is a common type of arrangement for professionals such as medical practitioners.

The use of a unit trust is also common for people who wish to develop.  Whilst not expressly prohibited for development, the ATO does not take a positive view in respect to fund’s acting like a business.  It is therefore common for SMSFs to invest in the trust and have the trust develop the land or existing property as the trust falls outside the superannuation legislation.  However, where the asset ultimately wants to move into the fund, consideration of CGT for example may become an issue.

Advantages – Allows for other investors to participate when SMSF does not have sufficient capital; concessional tax treatment on part of the income and part of the future capital gains (in particular in pension phase – tax free); potential saving of stamp duty on transfer of units into SMSF; SMSF can sell down units to other interested parties for liquidity purposes.

Disadvantages – limited circumstances to ‘gear’ trust; additional trust structure which requires financial statements and tax returns (accounting fees); may still incur stamp duty if trust is land rich; need to maintain unit register for changes to holdings.

4. SMSF Instalment Warrant/Limited Recourse Borrowing Arrangement (LRBA)

The introduction of gearing in super has certainly sparked some serious interest of investors back into the property market.  With many people steering clear of direct property investment within an SMSF due to lack of diversification, the ability to now borrow using an instalment warrant arrangement (LRBA) allows SMSFs to invest in bricks and mortar but not carry the weight of future liquidity restrictions in investing in a lumpy asset.  With LVR’s now at least 70’s% for commercial through to residential property.  With rental income and contributions to pay off the principal and interest repayments, it is a great way to accelerate repayments and get the benefits of concessional treatment inside super.

There are issues to consider around the non-recourse nature of the loan and cash flow requirements (including considering/revisiting your insurance requirements) etc.

Advantages – Allows for the SMSF to acquire the property (no other parties); two inflows for one repayment (accelerate wealth); in the event of default lender’s rights limited to property, therefore other SMSF assets are protected; future capital growth inside super (no CGT in pension phase); accumulators have long term retirement horizon to use gearing strategy.

Disadvantages – Need to be able to service the repayments; may have restrictions of contribution caps to make repayments; need to understand risks inherent with gearing;

Please note that you are unable to use this structure on a development project. It can only be used on a sole asset. Please note that this also effects the ATO reporting of the Fund in light of the Transfer Balance Caps for members.

Conclusion if you want to develop

If the property is developmental it would be best to utilise a s13.22c trust, details below, and then invest in the development, you could go into partnership with yourself, or other partners. However this can only be done if the development is 100% commercial.

13.22C

– Cannot have any borrowings, this includes overdrawing the bank account, even by 1c;

– There can be no lease in place with a related party, unless 100% business real property;

– The assets of the Trust cannot include:

                * Shares

                * Loans

                * Any asset with a mortgage over it, including warrant shares

                * An asset acquired from a related party, unless 100% business real property

Basically the Trust can have a bank account and property only.

If the development will be a mixture of residential/commercial then you will not be able to acquire it from a related party, this includes business partners.

You also will not be able to use a borrowing arrangement in the Fund as there will be several titles being built and LRBAs cannot be used for improvements.

An example of how 13.22c trusts can work is as follows:

Melvin Superannuation Fund would like to invest in property. The Directors of the Trustee do not wish to borrow within the Fund. The Directors have $1,200,000 in their personal names.

The SMSF already has 800,000 units in the 13.22c trust and the individuals then purchase 1,200,000 units (all at $1). This now leaves $2,000,000 in the trust to invest in property.

The unit trust then uses this money to purchase a property, pay for any purchase costs such as transfer duty and legal fees and maintains some extra funds in a bank account for some liquidity.

The unit trust enters into the leases with tenants, receives the rent and pays the expenses such as rates, insurance and repairs. The net income is then distributed to the unit holders based on their ownership. Each owner would include their share of the income in their tax returns.

PROS:

  • The Fund can later acquire units from the related party which allows it to increase its ownership of the property. This is not possible when a fund and related party co-own a property as tenants in common unless it is business real property;
  • The related party and/or the fund can subscribe to new units in disproportionate amounts if more capital is needed for improvements or renovations;
  • The related party can borrow to acquire their units in the unit trust (generally by offering another asset as security) and then claim the interest on the loan as a personal tax deduction because the trust is income-producing. This effectively allows them to gear their share of the ownership much like they would if they owned it as a tenant in common with the SMSF.

CONS:

  • The unit trust must comply with the provisions of 13.22c at all times. Any breach of this an the WHOLE trust must be wound up, even if the breach is rectified, this will cause issues with CGT, stamp duty, selling lump assets in a hostile market and so on.;
  • There are additional costs to establish this structure due to the set-up of a unit trust (and corporate trustee if desired);
  • There are additional costs to run this structure because the unit trust is a separate entity and must lodge a tax return.