Australians are known to love property as an investment vehicle. Generally this has been achieved by borrowing from a bank to purchase property before paying it off over time. Since 2007 self managed superannuation funds (SMSF) have been allowed to borrow money to acquire property, which has seen a large increase in the amount of SMSFs and the amount of property owned by SMSFs.
What is a SMSF?
A SMSF is a superannuation fund that has four (4) or fewer members and is an alternative to retail and employer sponsored superannuation funds. In a SMSF, the members (who are subject to strict rules) have control over the superannuation fund, its investments and decisions.
What are the benefits of an SMSF?
- Investment control and opportunities – members have flexibility and control over the SMSF’s investments
- Favorable tax concessions – a SMSF is one of the most tax-effective ways to hold investments.
- Estate Planning opportunities – Upon death a member’s superannuation benefit is not covered by their Will and a correctly structured SMSF Trust Deed can allow the member’s superannuation to be paid to the right person in a tax effective manner.
- Borrowing opportunities – laws allowing SMSF’s to borrow provide an avenue for members to acquire property and/or other types of property (for example shares) in their SMSF.
- Unlock cash in business premises – a SMSF can purchase commercial property that a member may own personally which in turn unlocks cash that can then be personally re-invested.
Tell me more about unlocking cash in my business premises.
If your SMSF buys the property from you using money contributed to the SMSF, then you can use the cash received from the sale for your personal circumstances now! The property moves into your SMSF and the money moves out. Cash in the SMSF is unlocked!
Are stamp duty concessions available?
Yes, commercial property in your own name which is transferred to your SMSF may receive substantial stamp duty concessions. This strategy could save you thousands of dollars in stamp duty!
Can I buy residential property in a SMSF?
Yes, but strict rules apply and failing to comply with the strict rules can have serious consequences.
There may be capital gains tax concessions too?
Yes, tax concessions may apply depending on when the property is sold and for how much. Obtain proper advice before you act.
How does borrowing in a SMSF work?
The loan must be a limited recourse borrowing arrangement, which simply means that in the event of default under the loan the lender only has recourse to the property, not other assets of the SMSF.
How to avoid problems when buying property in a SMSF?
Seek appropriate advice from qualified professionals. Consult with Southern Waters Legal and an accountant or financial planner who are familiar with SMSF borrowing.
Want to know more about borrowing in an SMSF or transferring property to your SMSF? Please contact Southern Waters Legal on (02) 9523 5535.