Questions & Answers - Property


+ Can my SMSF borrow to purchase Residential Property?

Yes. Clients of ESUPERFUND are permitted to invest in Australian Residential Property where the SMSF borrows to purchase the Property. To simplify the Loan Application process, ESUPERFUND (via Beagle Finance Pty Ltd) has established a direct arrangement with Liberty Financial allowing clients to easily apply for a SMSF Loan online via the Client Portal. For more on purchasing Residential Property in your SMSF with borrowings click here.

ESUPERFUND is an Authorised Credit Representative (ACR 413213) of Beagle Finance Pty Ltd ACN 140 290 268 (ACL 383640) which has a licence authorising it to arrange credit.

+ Does my SMSF have to use a specific Lender to borrow to purchase Residential Property?

Clients of ESUPERFUND may use Liberty Financial for their SMSF Loans. ESUPERFUND is an Authorised Credit Representative (ACR 413213) of Beagle Finance Pty Ltd ACN 140 290 268 (ACL 383640) which has a licence authorising it to arrange credit and has a direct arrangement with Liberty Financial. By utilising our direct arrangement with Liberty Financial (with ESUPERFUND acting on behalf of Beagle Finance Pty Ltd) to submit SMSF Loan applications, ESUPERFUND will guide you through the entire loan application process and ensure that the strict SMSF Loan requirements (including the preparation of the Security Custodian Trust / Bare Trust) are attended to.

+ What Interest Rates and Fees are payable if my SMSF borrows to purchase Residential Property?

The Interest Rates and Fees for Liberty Financial’s SMSF Loan product can be found here. While ESUPERFUND will constantly review Liberty Financial’s SMSF Loan Interest Rates and Fees and update our website accordingly, you should always confirm the Interest Rates and Fees by reviewing the Lender’s websites or by contacting the Lender directly. 

+ What is the Maximum amount my SMSF can borrow to buy Residential Property?

The current Maximum Loan to Value Ratio on Liberty Financial’s SMSF Loan Product is as follows:

- Where your SMSF Trustees are Individuals: 80% of the Property Value for established houses and townhouses or a reduced LVR may apply for apartments, newly established properties or some locations.
- Where your SMSF Trustee is a Company: 80% of the Property Value for established houses and townhouses or a reduced LVR may apply for apartments, newly established properties or some locations.

Please enquire via the ESUPERFUND Client Portal for maximum LVR available if you are purchasing a newly established property or a property in a regional location.


+ Can my SMSF borrow to purchase Commercial Property?

Yes. Clients of ESUPERFUND are permitted to invest in Australian Commercial Property where the SMSF borrows to fund the Property Purchase. For more on purchasing Commercial Property in your SMSF with borrowings click here.

+ Does my SMSF have to use a designated Lender to borrow to purchase Commercial Property?

No.  For client convenience and given the complexity involved with Commercial Loans ESUPERFUND offer a Broker Referral Service to source a Commercial Loan for you.  For more click here.

+ What Interest Rates and Fees are payable if my SMSF borrows to purchase Commercial Property?

Once you have identified a Commercial Property that you would like to acquire with borrowings and submitted a Commercial Loan Pre-Approval with ESUPERFUND, a Loan Consultant will be in contact with you to discuss your options. Once your requirements have been assessed we will provide details of a suitable Commercial Lender for your Commercial loan requirements and in turn advise on the appropriate Rates and Fees at that time.

+ What is the Maximum amount my SMSF can borrow to purchase Commercial Property?

Once you have identified a Commercial Property that you would like to acquire with borrowings and submitted a Commercial Loan Pre-Approval with ESUPERFUND, a Loan Consultant will be in contact with you to discuss your options. Once your requirements have been assessed we will provide details of a suitable Commercial Lender for your Commercial loan requirements and in turn advise on the Maximum Loan. Typically Lenders for Commercial Property will lend up to 65.00% of the Commercial Property value.

+ What is a Security Custodian Trust/Bare Trust Structure?

When acquiring Residential or Commercial Property with borrowings, the Property being acquired must be purchased using a Security Custodian Trust. This Structure is also commonly referred to an Instalment Warrant Trust or Bare Trust. When you apply for a residential SMSF Loan with Liberty Financial via ESUPERFUND (who acts as an authorised credit representative of Beagle Finance Pty Ltd), we will arrange for the preparation of all the required documentation to establish the Security Custodian Trust. It is important to understand that the Trustee of the Security Custodian Trust must be a Company. If you have a Company as your SMSF Trustee this Company cannot be used as the Security Custodian Trust Trustee. The Company must be a completely separate Company. Further information on this Structure can be found in our Loan Theory section here.

Please note that ESUPERFUND is an Authorised Credit Representative (ACR 413213) of Beagle Finance Pty Ltd ACN 140 290 268 (ACL 383640) which has a licence authorising it to arrange credit and has established a direct arrangement with Liberty Financial. 

+ Do my SMSF need a separate Security Custodian Trust Structure for each Property Purchase made using borrowings?

Yes. A separate Security Custodian Trust must be established for each Property that is acquired using borrowings. You cannot buy multiple properties with borrowings using the same Security Custodian Trust structure. You are permitted to use the same Security Custodian Trust Trustee Company to act as the trustee for each Security Custodian Trust. This saves the cost of establishing multiple Companies.

+ How does my SMSF complete the Purchase Contract if my SMSF is borrowing to buy the Property?

When acquiring Residential or Commercial Property using a Loan, the Property must be purchased in the name of the Security Custodian Trust Trustee Company. The following is noted:

  • The Property must be purchased in the name of the Security Custodian Trust Trustee Company.
  • All Directors of the Security Custodian Trust Trustee Company must sign the Purchase Contract.
  • Please note that the Purchase Contract can be signed with a "subject to finance" clause.
  • You must not put the name of your SMSF on the Purchase Contract.

Example:

If the Security Custodian Trust Trustee Company Name is Smith Pty Ltd then the purchaser on your Purchase Contract will be: Smith Pty Ltd. Neither the Trustees of your SMSF or the SMSF itself should be named on the Purchase Contract when borrowing to purchase Property in your SMSF.

+ Can my SMSF borrow to purchase Land?

No. At this time clients can only borrow to purchase Property that has already been constructed. Clients cannot borrow to purchase Vacant Land.

+ Can my SMSF borrow for an Off the Plan Property Purchase?

You may purchase an Off the Plan property with borrowings via your SMSF (subject to lender's credit criteria and limited Loan to Value Ratio and postcode restrictions may apply) however please note that the loan cannot be Formally Approved until title details and a Certificate of Occupancy/Classification are available (i.e. the property has been finished). You may seek an extension of the standard two week settlement period (after property completion) to avoid any late settlement penalties. The investor bears the risk that the property may not be acceptable to the Lender when purchasing Off the Plan Properties.

You may seek loan pre-approval prior to contracting to purchase property via SMSF to ensure that the application meets the Lender’s lending criteria prior to committing to the purchase and to gain a more thorough understanding of the complexities involved in the SMSF borrowing process.

+ Can my SMSF borrow to subdivide?

No. At this time clients can only borrow to purchase Property that has already been constructed. Clients cannot borrow to subdivide Property.

+ Is Lenders Mortgage Insurance payable when my SMSF borrows to purchase Property?

No. Lenders Mortgage Insurance is not payable on SMSF Loans taken out with Liberty Financial.

+ What is the Loan Process?

The Loan Process is provided in detail here.

+ Can my SMSF purchase Residential Property with no Borrowings?

Yes. Clients of ESUPERFUND are permitted to invest in Residential Property where the SMSF does not borrow to purchase the Property. This includes investing in Residential Vacant Land. For more on purchasing Property in your SMSF with no borrowings click here.

+ Can my SMSF purchase Commercial Property with no Borrowings?

Yes. Clients of ESUPERFUND are permitted to invest in Commercial Property where the SMSF does not borrow to purchase the Property. This includes investing in Commercial Vacant Land. For more on purchasing Commercial Property in your SMSF with no borrowings click here.

+ How does my SMSF complete the Purchase Contract if my SMSF is NOT borrowing to buy the Property?

When acquiring Residential or Commercial Property with no borrowing, the Property must be purchased in the name of your SMSF. The following is noted:

  • The Property must be purchased in the name of the Trustees as Trustee for the SMSF.
  • All Directors of the Trustee Company or Individual Trustees must sign the Purchase Contract.
  • Please note that the Purchase Contract can be signed with a "subject to finance" clause.

Example 1:

If your SMSF has Individual Trustees (eg Barney Spot and Buffy Spot) and the SMSF Name is Spotty Superannuation Fund then the purchaser on the Purchase Contract will be: Barney Spot and Buffy Spot as trustee for the Spotty Superannuation Fund. All Trustees of the SMSF must sign the Purchase Contract.

Example 2:

If your SMSF has a Company Trustee (eg Spotty Pty Ltd) and the SMSF Name is Spotty Superannuation Fund then the purchaser on the Purchase Contract will be: Spotty Pty Ltd as trustee for the Spotty Superannuation Fund. All Directors of the Company Trustee must sign the Purchase Contract.

+ Can my SMSF invest in Overseas Property?

Clients of ESUPERFUND are not allowed to invest in overseas property. The rationale for disallowing overseas property investments is that overseas countries in most instances will not recognise the SMSF as the purchaser of the property. This means that the property is invariably purchased by clients in their personal names with SMSF monies. This is tantamount to a super withdrawal and using the monies to acquire the asset in the Trustees personal name. The ATO would not accept that the owner of the asset is the SMSF in this case and where the monies accessed were preserved, the Fund would be severely penalised for illegal access of super benefits. Other reasons for disallowing overseas property is the difficulty in ascertaining who is tenanting the property as well as the additional complexity in converting rent and expenses from the overseas currency to Australian currency. This added level of complexity is outside the scope of our offering.

+ Where does the Rental Income get deposited?

The Rent from the Property Investment must be banked into the SMSF Bank Account.

+ How are Rental Expenses paid?

The Expenses for the Property Investment must be paid from the SMSF Bank Account.

+ Are there any additional compliance fees if I buy Property in my SMSF?

No. There are no additional compliance fees payable to ESUPERFUND by clients who invest in Residential or Commercial Property with their SMSF whether they borrow or not. Our annual fee remains at per annum.

+ What information do I have to provide to ESUPERFUND at year end for my SMSF purchases Property?

Information such as Rental Income and Expenses will be tracked by ESUPERFUND through the Transaction Bank Account where all Income will be banked and expenses paid in relation to the Property. Where additional information is required (such as the Property Purchase Contract) we will request this from you as part of the annual Checklist Process.

+ Can I claim Depreciation on properties acquired?

Yes. Clients who have acquired a Residential or Commercial Property in their SMSF may be able to claim tax deductions for depreciable items including carpets, furniture, fittings and so on. A Tax Depreciation Schedule for the property can be used to substantiate depreciation claims. Please note that the Tax Depreciation Schedule must be prepared by a Quantity Surveyor. A Tax Depreciation Schedule is a document that lists all the Properties Depreciable Items, their effective life and the dollar value you can claim against your SMSF Income. For example if your annual depreciation claim was $5,000 you will save $750 in tax annually (ie $5,000 x 15%).

+ Can I transfer or sell a Residential Property I own to my SMSF?

No. A SMSF cannot transfer (or sell) an asset owned by a Member (or an associate of a Member including family members by blood or marriage or entities controlled by the Member) to the SMSF unless the transfer is specifically allowed by legislation. Residential Property is not specifically allowed to be transferred by legislation.

+ Can I transfer or sell a Commercial Property I own to my SMSF?

Yes. A SMSF cannot transfer an asset owned by a Member (or an associate of a Member including family members by blood or marriage or entities controlled by the Member) to the SMSF unless the transfer is specifically allowed by legislation. Business Real Property (ie property that is used wholly and exclusively in one or more businesses such as Commercial Property) is specifically allowed to be transferred from a Member (or an associate of a Member including family members by blood or marriage or entities controlled by the Member) to a SMSF at market value. However you will need to consider Capital Gains Tax and Stamp Duty Implications prior to making this transfer. See here for more.

+ Can my SMSF buy or invest in my Family Home?

No. It is expressly forbidden for a SMSF to invest in the Family Home of a Member (or an associate of a Member including family members by blood or marriage or entities controlled by the Member) irrespective of whether commercial rental is paid.

+ Can my SMSF buy or invest in a Holiday Home?

No. It is expressly forbidden for a SMSF to invest in a Holiday Home used periodically by a Member (or an associate of a Member including family members by blood or marriage or entities controlled by the Member) irrespective of whether commercial rental is paid.

+ Who can rent the Property purchased by my SMSF?

Residential Property acquired by a SMSF must be rented out to third parties unrelated to you. This means you cannot rent a property to family including parents, siblings, children or your spouse. You can however rent the property out to unrelated friends. Commercial Property acquired by a SMSF (ie Property that is used wholly and exclusively in one or more businesses) can be rented out to any party including to you or an entity associated to you to the extent that commercial rental is paid.

+ Can I invest all my SMSF monies in a Property?

A single asset strategy may be adopted by the Fund if the asset proposed to be invested in is considered by the Trustee to satisfy the Investment Objectives and provided that the Trustees have considered the relevant Concentration Risk. By law, SMSF trustees must have an investment strategy which has regard to diversification. Investment decisions are a matter for SMSF trustees and it may prudent to seek financial advice.