Some people are still having confusion about what property a SMSF can invest in and which are “no-go” zone.

Rule 1, SMSF can’t invest in
SMSF is prohibited from buying residential property from fund members or from people, companies or trust they are ‘associated’ with. Purchases must be made at arm’s length.

Two people would be deemed associated if they are related (e.g. family members such as brothers and sisters), or if they are involved in a business in a business together (in a partnership or on an employer/employee basis)

A person and a company would be associated if the person is a director of the company and is actively involved in the day-today operations of the company or if the person owns over 50% of the shares or has voting rights fro the company.

A person and a trust would be associated if the person is a beneficiary of the trust and the trust is a discretionary trust (such as a family trust) or if the person owns over 50% of the units or has voting rights fro a unit trust.

Rule 2, SMSF can invest in
SMSF can buy ‘business real property’ from anyone, including fund members or people, companies or trusts they are ‘associated’ with. They can also buy residential property owned by someone else who is not an ‘associate’. Purchases must be made at arm’s length.

Business real property
The property must be used wholly and solely for business purposes at the time of purchase. It can be a shop, factory, office or farmland. It can even be a house used for business purpose, such as a doctor’ surgery or an accountant’s office.

SMSF has to be make sure before transferring a shop, office, factory or farmland, there is a tenant running a business from that property, otherwise SMSF may fails the business real property test.

Residential property owned by someone else
SMSF can purchase residential property from people and entities where is no association.

Residential property investment can not be occupied by fund members or their family, irrespective of how much rent is paid. Fail to pass this rule is a serious beach of legislation and to comply with the ‘sole purpose test’.

If the main purpose of an investment property is to provide adult children or relative with a home, the SMSF will fail the sole purpose test.

Rule 3.

Extending credit to another company involves risk. Of course, in most case, the risk is part of the cost of doing business and it is acceptable… so long as it is managed properly.

Even if you were not able to apply any of the other rules to your business, we urge you to apply this one. Why? Because un-tended receivables can get out of control in the blink of an eye. And out of control is the first step towards being out of business. Here are some danger signals you can watch for:

• Slow payment or a changes in payment habits
• Broken promise of payment
• Unreturned messages
• Post dated cheques
• Refinancing or changing banks
• Unauthorised return of merchandise
• Selling at unusually low prices
• Radical changes in buying patterns
• Too rapid growth

These are just a few of the things you should keep your eye on all the time. If you spot more than one of these signals coming from a company which owes you money. it’s probably time to take action

Rule 4.

Don’t show them any weakness

It’s called “sticking to your guns”. When you set terms, be determined to communicate them and stick to them, no matter what. Remember that a deal is a deal. You have fulfilled your obligations, now it’s their turn.

You do it by stating your terms and intentions with clarity and firmness. If you are vague and easy-going about your terms. it’s more likely that people you deal with will be vague and easy-going about paying you.

It’s important to develop a set of reasonable terms and conditions and it’s important to make them part of your sales contract.

A world of advise: If you don’t actually tell them your terms. you cannot assume they understand or accept your terms. You cannot assume that the other person is a dead-beat just because the bill wasn’t paid on time. The truth is that many disputes and late payment situations arise through simple misunderstandings.

Remember to explain your terms ad conditions to your own employees. It’s a common mistake to assume that your own people are well informed about how you conduct business.

Rule1, He who expects to get paid, gets paid

In the administration and control of receivables, attitude counts. We have discovered that if you expect to get paid and the other party knows it and knows you will take action if you are not paid, you will get paid.

It’s simple, if you take it seriously, they will take it seriously. On the other hand, if you treat receivables lightly and allow your customers to take advantage of you, they will. What does “taking it seriously” mean?

It means:

• Establishing policies and procedures that will help you make decisions faster and easier.

• Making a commitment to properly train yourself and your employees in how to manage and collect receivables.

• Being certain your customers understand your terms & intentions.

• Understanding and using the tolls and services that are available to you.

We invite you to take a closer look at how your company handles its receivables. Ask yourself if you are taking the task seriously enough or is an attitude a adjustment required?

Rule 2, Do something every twenty days

Nothing is more effective than a systematic, controlled approach to collection. Step-by-step procedures are the key.

We have had a great results with a process we call the “Twenty Day Diary”.
Here’s how it works:

• Day one, you make a sale, deliver the product and issue an invoice with terms set at Net 30 days.

• Twenty days later – ten days before the receivable is due – you call the customer. This is a pre-collection call that doubles as a service call.

• You ask if the order was received, if everything was satisfactory, if they have the invoice and if they understand the terms.

• I there is a problem, you have a chance to fix it before the due date and everybody is happy. If there is no problem, you know the customer is satisfied and is likely to pay on time and the customer knows you care.

• The next call (if necessary) is then scheduled for twenty days after that – 10 days after the date. If a genuine problem has risen, it’s early enough to deal with it efficiently. But if you are being stalled. you will know that too and you can act accordingly.

The secret is to be systematic and organised. We call it the “Twenty-Day Diary” because to make it work, you have to keep track. Write down what was said. when, by whom, every step of the way and you can’t go wrong.

The anti-detriment provisions provide a great planning strategy to all superannuation funds, where a member dies.

Generally, if the legislative requirements are met, they allow a superannuation fund to pay an additional amount to the deceased member’s dependants, on top of any death benefits sourced from the member’s account, representing the amount of contributions tax that the member has paid over his or her lifetime.

By return for making this payment, the fund can receive a tax deduction equal to the amount of the payment divided by 15%. Therefore, if the fund calculates that the member had paid $15,000 of contributions tax over his or her lifetime, and can finance and anti-detriment payment equal to this amount, the fund will receive a $100,000 tax deduction!

There are effectively four accepted methods for calculating the amount of contributions tax paid, but the easiest, if the information is available, is the ‘audit method’, which requires the SMSF trustee to ascertain the actual amount of contributions tax paid, by accessing the recorded amounts of contributions tax paid in each financial year.

Keep this in mind, it may be worth keeping such records now, especially for your own SMSFs, it could conceivably create a ‘tax-free’ SMSF!