Ask Max: Your questions answered

Asset diversity for SMSFs, buying gold, setting up an SMSF, investing inside or outside of a super fund, and topping up before the budget.

Summary: This article provides answers on asset diversity for SMSFs, buying gold bullion, a beginners’ guide to setting up an SMSF, deciding whether to invest in property directly or through your super fund, and topping up your SMSF ahead of the May federal budget.
Key take-out: Asset allocation and diversity strategy differs according to the age of the beneficiaries, but go for a balanced approach when approaching retirement.
Key beneficiaries: SMSF trustees. Category: Superannuation and tax.

What asset mix should we have in our SMSF?

My husband is 53 and I am 47. After our marriage I have joined his SMSF. I am finding it difficult to find an answer to my dilemma. Considering the ages we are, what would you consider is the preferred diversity asset mix percentage wise?

Answer: The asset mix for the investment portfolio of an SMSF will depend on a number of factors. One of the first to consider is the attitude you each have to risk. If you are both comfortable with investing in growth assets, such as Australian and international shares, you can have a higher percentage allocated to this asset class. If on the other hand you would be very nervous about having a high percentage of your SMSF portfolio invested in shares, consider only investing a small percentage in this asset class.

Other considerations when formulating an investment strategy for an SMSF are the years to go until members will be drawing down a pension, whether the members are in their early stages of accumulation making regular contributions and the amount a person has in their super account. Where a member of an SMSF is relatively young, does not have a large balance in superannuation, and is having regular contributions made, a larger proportion of the portfolio can be allocated to riskier high-growth investments such as shares. This is because,e in the event of a sharemarket crash, they will not lose as much money and they will get the benefit of dollar-cost averaging as their new contributions will buy into the market at a lower value. I, however, am a firm believer of a balanced approach to investing when it comes to SMSFs, especially when members have high balances and are nearing retirement. This would mean investing in the different asset classes as follows:

Australian shares

20% to 40%,

International shares

5% to 15%

Fixed interest

15% to 30%

Property

15% to 30%

Alternatives

0% to 10%

Cash

5% to 20%

The allocation I am making to the property sector is into property directly, rather than listed property trusts. If the superannuation fund has sufficient money to invest this could be done as a direct property investment or it can also be invested through unlisted property trusts. You should seek advice from a fee for service advisor that specialises in portfolio construction for SMSFs.

How do I buy gold for my SMSF?

Can SMSFs buy gold bullion from the Perth Mint and how is this done? Where can SMSF store this product? Do we not need to pay CGT after profit from sale?

Answer: There is nothing stopping an SMSF investing in gold bullion. The best thing is to contact the Perth Mint and buy from them directly. My understanding is that they offer a storage service but I am not sure as to what this costs. Under the current legislation if the gold was sold for a capital gain, and it was owned for longer than 12 months, capital gains tax would be payable on two thirds of the gain at the 15 per cent superannuation income tax rate.

I want to manage my own super when I retire this year.

I am fast approaching retirement, probably later this year or early next year, and am interested in setting up an SMSF. I am looking for a step-by-step beginners guide to setting up my own SMSF – something that is complete but also comprehensible to a person with little financial background? I understand the reasons why I want to set up an SMSF; I need a guide as to how to go about it.

Answer: The first step in setting up an SMSF is to have a trust deed drawn up and it makes sense to also set up a company to act as trustee for the fund. There are a number of service providers that offer this service and you should shop around to see who provides the best value for money. Once the fund has been set up an application for an ABN and income tax file number needs to be made. This can be done by completing a paper-based application form or going online to the Australian business register. The next step is to set up a bank account for the fund so that the superannuation from your current fund can be rolled into it and where further contributions will be deposited.

After all of the cash is in the bank account for the SMSF you will need to formulate an investment strategy for the fund and then purchase the investments in accordance with this strategy. There are accountants that offer an SMSF set up service that is all encompassing and is not much more expensive than doing it all yourself. The Self-Managed Super Fund Professionals Association of Australia has a list on its website of accredited SMSF specialist advisers.

Should I invest in property through my super fund?

I am 60 and have an SMSF with $1,800,000 in blue-chip shares and three properties outside of the SMSF which are overall positively geared, as well a good Comsuper pension. A bargain art deco unit in inner Brisbane is tempting me. I could buy outside super or sell some shares within the SMSF for a deposit and buy within the SMSF. What are your thoughts on the two options? You may say I am too old and should focus on retirement income but this is my hobby. The property has great growth potential. It is good internally but down the track will need new carpets and repainting. Would this classified as repairs rather than improvements and so be an allowable deduction? What would be the implications, say in five years, of replacing the kitchen and bathroom?

Answer: If this is your hobby you should not consider conducting this in your SMSF as superannuation should be for retirement purposes, not the conducting of a hobby. As you are currently positively geared with your other investments outside of super it could make sense to borrow and gear the new investment to reduce income tax payable on your current property portfolio. If you can make a case for it being a good investment for your SMSF you could buy it in the SMSF so that the tax payable on the sale of the property would be zero if this is done when your super fund is in pension phase. The tax deductibility of repairs for a rental property depend on whether they relate to the renting activities. From what you have described, these alterations and repairs need to be made now and therefore would not be considered as a rental expense but would be classed as a capital expense.

Should super contributions be made before the May budget?

Perhaps this is a question for the whole crew and the crystal ball. Do we make any contributions to our SMSF before the May budget or not? What are the chances of a retrospective tax? Is there any precedent for this happening?

Answer: As a result of the announcement by Wayne Swan and Bill Shorten on Friday, April 12, we now know what the superannuation policy changes would be under the Labor party. As it would appear that these policies will not become legislation before the election there is not a high likelihood that they will become law. The only retrospective part of the legislation was the intended imposition of a 15% tax on income earned by a superannuation fund in pension phase, when the income earned exceeds $100,000 in a year. Previously when changes have been made existing superannuation was not subject to increases in taxation and this would have been a departure from this time honoured tradition. Until the Opposition releases its policy on superannuation we will not know what their proposed changes are and whether there will be any that are retrospective. Tony Abbott has however said that he will not introduce any retrospective changes to superannuation.


Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs.

Note: We make every attempt to provide answers to readers’ questions; however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.

Do you have a question for Max? Send an email to askmax@eurekareport.com.au