Superannuation legislation does not state the exact sorts of investments you should, or can make with your SMSF, although you can find broad information on different kind of SMSF investments on the ATO website here.
What can an SMSF invest in? The basic principles are that an investment must be a sound, legal investment considering the return, risk, stability etc.
Importantly, there are restrictions on some investments, designed to protect the assets against possible risk. The restrictions can be summarised under the umbrellas of “sole purpose” and “arms length” for example, you cannot
- live in/on a property investment before, or even when you retire (except for in limited circumstances)
- receive any present-day benefit, such as from collectibles (read more here)
- lend to members and their relatives
- acquire assets from ‘related parties’ of the fund (except for in limited circumstances)
- borrow (except for property) and this must be done via an Limited Recourse Borrowing Arrangement (LRBA) (read more here).
Money belonging to the SMSF must not, under any circumstance, be used for personal or business purposes. This money is for retirement purposes and, except in specific circumstances, cannot be accessed until retirement.
The fund’s assets must never be viewed as a form of credit or emergency reserve when faced with a sudden need.
This also means that SMSF Trustees must also keep SMSF money and assets separate from their own personal and business assets. You should not store SMSF bullion, for example, in the same safe as non-SMSF bullion. Similarly, you must not transfer SMSF funds into your personal account to pay for investments.
Note, you can rent the SMSF commercial investment property to a business run by the members, or to friends under commercial terms.
The main purpose of the investment is to generate and grow to provide income – either through yield (like dividends or rental income) or capital gain – to support the retirement of the Members.
Read what the ATO says about investments here and about restrictions here.
