As featured in the June edition of the Bendigo Enterprise Magazine.
Sarah Gee, from our Commercial Law team at Robertson Hyetts Solicitors presented a ‘Self Managed Super Fund (SMSF) Legal Services Update’ in collaboration with the Bendigo-based NAB Business Banking team to further streamline our client services in this growing area.
Neil Edwards, Business Banking Executive, said, ‘Skill sharing provided a dynamic forum for over 20 regional business banking and agri-business team members to discuss their roles and responsibilities in the provision of SMSF services to streamline client service delivery’.
‘These business events are an important part of what Robertson Hyetts see as its role in providing relevant legal updates to protect both SME’s and private clients’ interests. The firm hosts a series of events and seminars each year on various topics to better inform clients on relevant legal matters’, explained David King, CEO, Robertson Hyetts Solicitors.
Self Managed Super Fund Legal Services Update
The self managed super fund (SMSF) sector is rapidly expanding due in part to larger balances enjoyed by members, and partly due to members wishing to have more control over their balances after substantial losses incurred during the Global Financial Crisis. NAB and Robertson Hyetts Solicitors have been working together to combine their expertise and products to meet the increased demand in this area.
What is a limited recourse borrowing arrangement (LRBA)?
Since 2007, trustees of SMSFs have been able to borrow money from their lenders to purchase single assets within their fund through limited recourse borrowing arrangements (LRBAs). Momentum is picking up amongst investors eager to take advantage of the ability to borrow to purchase residential and commercial properties, farming land and shares with their SMSFs and capitalise on the favourable tax treatment available.
Benefits of SMSFs
The benefits from SMSFs are not entirely limited to increased retirement savings. While an SMSF must meet the sole purpose test of providing retirement benefits to members, SMSFs often have associated estate planning and asset protection advantages.
Using your SMSF for estate planning
One example of such a case is where Jonathan, a farmer in his 60s is looking to hand over his farm to his son Ashley after having some health problems. A sale will free up some cash and allow Jonathan to move into town to be closer to medical facilities. Ashley has his own farm a few kilometres away and has two sons currently finishing high school. While ideally his sons would help Ashley with the management of both farms, like most teenagers, Ashley’s sons are vague about what they want to do after they complete their studies.
Ashley and his wife decide to purchase the farm using a combination of money from their SMSF and an LRBA. This arrangement gives Ashley the flexibility to lease the land to a neighbour until his sons decide whether they would like to take over Jonathan’s farm. In the meantime, Ashley can boost his retirement savings and the farm stays in the family. There are also significant tax benefits.
Using your SMSF for asset protection
We commonly see self-employed people such as mechanics and health professionals purchasing their business premises using an SMSF and leasing the premises back to their business entity. The benefits of such an arrangement include paying rent directly into your own retirement savings, certainty of the availability of the premises in the future and taking advantage of favourable tax treatment for income. But also, from a risk management perspective, using the correct legal structure can remove the property from the reach of creditors if the business fails.
While LRBAs open up a great deal of potential for SMSF owners to borrow from their bank to purchase property and other assets within their funds, these type of investments are more highly regulated than traditional investments. The law assumes that trustees of SMSFs are sophisticated investors who are capable of protecting their own interests. The penalties for non-compliance are high and can include the retrospective imposition of tax at 46.5%. It is vital to seek out the right advice from appropriately qualified professionals before considering setting up an SMSF to ensure it is completed correctly and offers the greatest benefit to you.
Robertson Hyetts Solicitors proudly working with a number of NAB customers in providing SMSF services.