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.

1. Look after your future self

Superannuation is a way to save for your retirement. When you are a Contractor or Self-Employed, Superannuation is essentially your own obligation. There is no employer squirrelling away your 9.5% for you every pay run. Treat yourself as an employee and put Super away each year to ensure you can live comfortably in retirement.

2. Know the tax advantages

Income derived from your Super is taxed at 15%. Income you earn that is put into Super (up to certain contribution limits) is taxed at 15%. Putting money into Super can be very advantageous from a tax point of view. Further, if you own your own business there are very generous tax exemptions that may apply when you sell your business and put the proceeds towards Superannuation. Make sure you are aware of these when planning for the sale of your business.

3. Consider a Self-Managed Superannuation Fund (SMSF)

A SMSF is a Super fund where you get to choose how your retirement funds are invested. With most public funds usually invested in a mixture of shares (domestic and international), cash and retail property trusts, it is often the case that you may not have any idea where your retirement savings (Super) are invested. If you create a Self-Managed Super Fund you can decide where you would like your retirement savings to be invested, including purchasing properties that you choose and that will provide your SMSF with rental income.

4. Consider property as an investment

SMSFs can purchase property. A SMSF can hold residential or commercial property. It’s important to note that you can’t buy a residential property to live in, or for any family member to live in.

A great strategy is for an SMSF to buy a commercial property to lease back through their business. The benefit of this is that you are essentially paying rent to your future self.

You are able (subject to very specific requirements) to borrow money to purchase a property through your SMSF. There are also stamp duty concessions for transfers of commercial property you currently own into your SMSF.

5. Know your limits

For the financial year 2014/2015 – the maximum Concessional contribution (essentially pre tax) is $30,000 and if you are aged 49 or over on 30 June, or if you are aged 59 or over on 30 June 2013, the maximum contribution is $35,000.   The maximum non-concessional contribution (essentially post tax) is $180,000, but you have the ability to contribute 3 years in one go, if you would like.

Don’t leave it until the last minute of a financial year to make contributions. Allow sufficient time for payments to be processed by your fund.

6. Integrate your Superannuation into your business planning

Business planning should be an integral part of your business. By understanding both your private and business goals, you can then develop an action plan, which focuses on achieving these goals. It will also help minimise any risks you may have with your business and the undue stress related to such risks later on.

By thinking about your Superannuation and integrating it within your business planning, you will ensure that you have some form of asset/income once you retire.

If you would like any advice on setting up a SMSF or planning for your future, call Simon Bennett on (02) 9523 5535.