An SMSF is a private superannuation fund that you manage yourself. It’s a way of saving for your retirement, where you have control over the investment strategy and the types of investments made.

An SMSF can have up to six members. Each member must be a trustee of the fund, or a director if the fund has a corporate trustee.

Trustees are responsible for managing the fund’s investments, ensuring compliance with superannuation laws, preparing and lodging annual returns, and ensuring the fund is audited annually.

SMSFs are prohibited from investing in certain assets, such as loans to members or their relatives, assets acquired from related parties that are not at arm’s length, and investments that do not meet the sole purpose test of providing retirement benefits to members.

SMSFs can borrow money under specific conditions through a Limited Recourse Borrowing Arrangement (LRBA). Under an LRBA, an SMSF can borrow money to acquire certain types of assets, subject to strict legal requirements.

The main purposes for which an SMSF can borrow money include:
Purchasing Property: SMSFs can borrow to buy residential or commercial property. The property must be held in a separate trust, and the SMSF has beneficial ownership of the property
Investing in shares and other financial assets: SMSFs can borrow to invest in shares, managed funds, and other financial assets.

The borrowed funds must be used to acquire a single asset or a collection of identical assets with the same market value

It’s important to note that the borrowed funds cannot be used for improvements or renovations of the property that would fundamentally change its character. However, repairs and maintenance are allowed.

SMSFs are taxed at a concessional rate of 15% on income, including rental income and capital gains. However, this can be reduced through deductions and offsets, and earnings in the pension phase are generally tax-free.

Costs can include investment fees, accounting and auditing fees, legal fees, and administrative expenses. These costs vary depending on the size and complexity of the fund.