Buying Property through a SMSF
If you are looking to control your Super and are unhappy with your Industry Super Fund returning consistent poor or negative returns like many other Australians you now have more options in regards to a SMSF.
In 2007 the Australian Government made it possible for ordinary Australians to borrow money to buy property in their SMSF.
Before setting out on this journey you must ask yourself 3 simple questions as everyone's goals will differ and each of us is in a unique financial position.
- Do you have an Existing Industry or Platform Based Super Fund with a combined minimum balance of $80,000?
- Are you looking to control your Super Fund Investments?
- Are you looking for a low cost Self-Managed Superannuation Fund Solution?
If you have answered "YES" to the above questions, purchasing a property with SMSF might be a good start for building the foundation to your retirement wealth.
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Investing in Property with SMSF FAQs
Can I buy an investment property with my Self Managed Super Fund?
Yes although there are things that need to be considered before you do.
You can buy any sort of property however Residential Property must be an arms length transaction from a third party. You can buy Commercial Property from a related party if certain conditions are met.
Can I borrow to buy property through my SMSF?
Yes, but there are guidelines to follow to allow this to happen.
Changes to the Superannuation Industry Supervision (SIS) Act in September 07 now means SMSFs can now borrow to purchase real estate using a structure established for this purpose as long as certain conditions are met. There are various loan products offered which enable these purchases to be made.
Who can help me with a loan for property acquisitions in my SMSF?
Our financial partner specialises in SMSF funding and has a range of products from major lenders available for your consideration. It must be remembered that you can't use a standard mortgage or loan for SMSF property acquisitions.
Can I buy property for my SMSF that I already own personally?
In some instances yes, it will depend on whether the property is residential or commercial. You can buy a commercial property that you already own and even borrow against it as long as you meet the borrowing criteria i.e. a maximum LVR of 72% for residential property and 63% for Commercial Property.
If you want to buy a residential property then it must be at arms length and not currently owned by a related party, it must be purchased from and leased to an unrelated third party.
Can I rent a property from my SMSF?
You can not rent residential property from your own SMSF; however in some circumstances you will be able to rent a commercial property if it is for business purposes. The rent will have to be at a market rate and the premises will need to be for running your business.
What is a limited-recourse loan?
The lenders recourse to recover monies if the SMSF is in default is limited to the property that is securing the loan. It does not allow the Lender to chase other assets within the SMSF if there is a short fall.
What is an Investment Strategy?
To set up and run your own SMSF under you must have an Investment Strategy in place.
The trustee of a SMSF is required to prepare and implement an investment strategy for the fund. The strategy must reflect the purpose and circumstances of the fund and take into account:
- How to maximise it's member returns while taking into account the risk;
- There should be diversification in this long term investment strategy; and
- The ability of the fund to pay benefits as members retire, and other expenses incurred by the fund.
The Trustees must be certain that all investment decisions are made in relative to the investment strategy of the fund and should seek advice from a investment manager in writing if in any doubt.
Why do I need an Investment Strategy?
It is required by Law for the SMSF to be a Complying Fund. You must seek financial advice from your own Financial Planner as to its eligibility under the SIS Act. Severe Penalties apply for non compliance under the SIS Act.
What is a Complying Fund?
A Complying Fund is one that meets all the applicable requirements and Laws. There are heavy penalties in the way of increased Tax rates if your SMSF is found to be Non-Complying.
If a fund becomes non complying its income tax rate will go up to 45%, it is also subject to 45% tax on all its asset base at the start of each year it is in breach. This will cause the fund to have a tax bill it probably can't pay causing the property to have to be sold.
Lending to a SMSF
There are a number of Lenders including the major banks that now have loan products for property acquisitions by Self Managed Super Funds.
What are the Stamp Duty and CGT Implications?
Assuming current legislation applies there will be no CGT or Stamp Duty payable when the property is transferred from the trust to the SMSF once the loan is paid out. You must however make sure the correct documentation is in place when drawing up the structure.