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Nadine Davis
Copyright (c) 2010 Nadine Davis Superannuation is a complex and ever-changing investment vehicle, designed to allow employees and self-employed people the opportunity to accumulate wealth to fund their retirement. Rather than put the whole issue in the hands of expert fund managers whose professional qualifications, experience and expertise give them the credentials to look after these funds, some people have elected to take control of their retirement investments by establishing their own DIY super funds. This may sound feasible in theory, but with the complexity of the legislation surrounding these funds, and the way that superannuation rules seem to change with each annual federal budget, this may not be the best option. The average wage and salary earner leaves the management of their superannuation up to expert fund managers, but along comes DIY super, and everyone is an expert. As if the responsible management of a retirement investment is not enough to deal with, the tax rules and legislative changes surrounding self managed superannuation funds need to be understood, monitored and action taken. The new gearing rules that are currently in place are a great example of how quickly things can change, so it is imperative that fund managers are on top of changes at all times in order to comply effectively. The superannuation laws have been amended for limited recourse borrowing by superannuation funds entered into on or after 7 July 2010. Some of these changes include: => Better protection for super fund assets if a default on borrowing occurs. => Only under very limited circumstances can an existing asset be replaced by a different asset. => Trustees of super funds cannot borrow to improve an asset. => Borrowing is only permitted over a single asset, or a number of identical assets with the same market value. The provision on borrowing does not mean that a SMSF cannot borrow money. Regardless of this, there are many conditions that create complexity around the gearing rules and these complexities need to be satisfied in order for the transactions to properly comply. Contravening these conditions can lead to damaging civil or criminal consequences. There are other changes to the gearing rules that raise the question of the ability of a DYI fund to manage the whole process without expert assistance. Even with the best understanding of these changes, any transactions undertaken are still complex, and completing any of the necessary steps in the wrong order could have implications for the payment of stamp duty. With the enormous responsibility place on fund managers to acquire and keep on top of the requirements for knowledge and compliance, the concept of DIY Super is something not to undertaken lightly or by any means without proper knowledge.
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