Some people think that managing their own super through an SMSF is too hard or only for investors with specialised financial knowledge. But with research and good advice, anyone can be the master of their own financial future!
Using your SMSF to purchase a property can set you up for a comfortable retirement. While you might find navigating the rules and regulations a nightmare, this handy guide will help you understand what to (not) do when buying a property through your SMSF.
Residential property has experienced excellent capital growth in Australia in the last two decades. However, there are some legalities that you need to be aware of.
An SMSF can’t buy a residential property from a member or trustee of the fund, such as you, a family member or a friend. The fund also cannot sell it or lease the property to these people. So your SMSF cannot purchase a home for you to live in. This includes holiday homes.
Your SMSF can buy a home for you to retire in, however you can’t live there until you’re receiving a pension from the fund and the property has been transferred to you personally. You will also be liable to pay stamp duty when you transfer, so you should factor that into your calculations.
An SMSF can purchase a commercial property and your business can lease the property from the fund, paying a rental figure at market rates. The benefit of this is that while your rental income is either paying off your SMSF’s loan or pouring directly into your fund, the business can claim the rent paid to the SMSF as a tax deduction.
So your business is paying for your retirement! But note that the business must pay market rates to rent the property.
New developments, subdivisions and renovations
Here’s where it gets tricky. Your SMSF can, for example, buy an ‘off the plan’ apartment, but it can’t buy land to develop or subdivide. SMSF properties must be on a single title and remain the same property for the duration it is owned by the SMSF. An SMSF can only maintain and repair existing properties, so you can forget about using your SMSF to buy the renovator’s delight around the corner!
Limited recourse loan
If your SMSF doesn’t have the assets to purchase a property outright, you can borrow money from a lender. It is generally more difficult to get a loan for an SMSF property than a regular loan, and your fund must usually provide 20–30% or more of the deposit money itself. While this may seem like a drawback, the reason is because lenders take on more risk. An SMSF can only borrow money using a limited recourse loan. This means that if the fund defaults on the loan, the rest of the fund’s assets are protected from creditors.
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