Law reform needed for SMSFs
More needs to be done to make investing through self-managed super funds more attractive, according to Chan & Naylor.
The national accounting firm has welcomed assistant treasurer Bill Shorten's move to accelerate laws to clarify uncertainties recently identified surrounding the use of trusts within families and small businesses, but says more is needed to alleviate the sting in property investment for SMSF trustees.
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Ken Raiss, director at the firm, identified several concerns within SMSF legislation, including renovation limitations.
According to Mr Raiss renovation is ham-strung under existing legislation as SMSF trusts cannot acquire a property and then undertake renovations while debt is still owed on the property.
"Therein lies the sting in the tail: you can invest in a property through a SMSF trust mechanism with debt, but you cannot contribute to its value unless you own the property outright," he said.
Another consequence of the legislation on SMSF borrowing is that if the property is destroyed by natural disaster no insurance proceeds or cash within the SMSF can be used for rebuilding.
According to Mr Raiss, addressing this impasse will encourage more ‘mum and dad’ investors to consider property a viable alternative to shares, with the long term benefits of a more sustainable retirement industry and a solution to the current rental housing supply shortfall.
SMSFs are trusts run for the sole purpose of providing retirement benefits to fund members. There are currently 439,397 SMSFs with a total of 839,510 members, or trustees, across Australia according to the ATO SMSF Statistical Report December 2010.
While Australia's pensions fund sector is the fourth largest in the world only $13 billion or one per cent of the total $1.3 trillion sector value is currently invested in residential property (Towers Watson Global Pension Asset Study 2011).
