Buying Property Through Your Super (SMSF)?
Property is the most trusted asset class for Australians, yet only around 3.5% of all SMSF investment is in residential property according to the latest ABS report (www.ato.gov.au/Super/Self-managed-super-funds).
Property investment can produce a range of tax benefits, for e.g. your tax can be significantly reduced or eliminated for rental income and capital gains, and the rental return can be used for loan repayments.
Do you need a SMSF to buy property through your super?
You do, that is if you want to choose which property you invest in anyway. Contact us today for a FREE 30 min SMSF consult and we can help you get started.
Are you in business?
Business owners can get some significant benefits when buying their commercial premises through their super. Along with all of the tax benefits mentioned above you also avoid the tenant or landlord issues that are often associated with commercial property. This is great, as buying your own business property still satisfies the ‘sole purpose’ test which is discussed under ‘what are the rules’ that follows.
Can you borrow money when buying property through super?
You CAN. Often banks will lend up to 80% for a residential property and 70% for commercial property loans through your SMSF. This is an example of leveraging the bank’s money to increase your investment.
What are the rules?
There are significant and strict rules around property investing through your super, according to moneysmart.gov.au the property must comply with these 4 key rules:
- The property must pass the ‘sole purpose test’ – this means that the property must provide benefit solely to the SMSF fund member’s retirement. It’s the same as investing in art through your SMSF, you must keep that art in storage until you retire so that you don’t get any pleasure from it before that time.
- You cannot buy or acquire the property from a family member.
- Neither you or your family members can live in the property.
- Neither you or your family members rent the property. Basically, it’s off limits to you and your family members. It is an investment property for your SMSF only.
Tips and Traps
If you’re happy with (or can at least manage) the restrictions you need to consider if you’re ready for this. Like any major financial decision jumping in means that you take on more responsibility. You should also consider if you’re better off buying the property outside of your super fund. Although the tax benefits can be great and borrowing money for your super-fund can be an extremely well leveraged strategy, the negative gearing benefits could be negligible. Therefore positively geared properties are often a good option for your SMSF. In short – make sure you do your research and consult an expert.
The bottom line
There can be some MASSIVE benefits of buying investment property through your SMSF, by borrowing money you are increasing your investment which can yield great results over time. There are also options to secure your loan to protect your other assets in the fund. These investment and asset protection strategies are things you really should spend time researching and talking through with your advisor. We specialise in SMSFs and would LOVE to talk to you about your options.
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This article is provided as general information only and does not consider your client’s specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of a client’s specific circumstances. © 2014 ChangeGPS Pty Ltd