To make smart, growth-focused property decisions, you need to surround yourself with an expert team. Your professional team is critical when considering buying an investment property through your Self-Managed Superannuation Fund (SMSF) because of the complex rules and regulations surrounding superannuation.
According to the Australian Tax Office (ATO), the SMSF sector comprises nearly 600 000 funds with an estimated total value of $755 billion in assets. This amount is almost a third of Australia’s total super assets.
Many investors consider buying a property through their SMSF too complicated to be bothered! However, there are many benefits to getting it right in the long-term.
What you can do:
- Invest in residential property
- Invest in commercial properties
- Small business owners may benefit from being able to occupy the property they operate their business out of and pay market-rent back to their SMSF.
- There are tax deductions available, but they can only be deducted from the fund.
What you can’t do:
- Transfer an existing residential investment property to a property held under an SMSF
- The property cannot be acquired from a related party of a member
- It can’t be lived in by a fund member or any fund members’ related parties
- It must not be rented by a fund member or any fund members’ related parties.
- If an SMSF uses a loan to purchase a property, there are restrictions on the types of renovations that can be made.
Other regulatory requirements include meeting the sole purpose test. Trustees can face severe civil and criminal penalties if the fund is seen to be contravening the sole purpose test. For example, leasing the property at market value to a related party.
Can I borrow money to invest in property through my SMSF?
Yes! You can borrow under strict borrowing conditions called a ‘limited recourse borrowing arrangement’ (LRBA). An LRBA is where your SMSF takes out a loan from a third-party lender for the investment property held in a sperate trust called a ‘bare trust’. The LRBA can only be used for a single asset.
Proceed with caution!
You are ultimately responsible for running your SMSF. Get good advice from an SMSF professional to make sure your property investment complies with the law.
The Triple Zero Property team has helped many clients purchase a property through their SMSF once legal, accounting and financial advisers have set-up necessary structures.
Please call 1300 897 000 to make an appointment so we can help you reach your property goals.
Disclaimer: The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek expert legal advice before you make any decisions regarding SMSF’s.