Residential Property with Borrowings
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 has established direct arrangements with a number of Lenders allowing clients to easily apply for an SMSF Loan online.
Panel of Lenders
ESUPERFUND has arrangements in place with the following Lenders to provide SMSF Loans for your SMSF:
- Bank of Melbourne/St George
- Commonwealth Bank
- Macquarie Bank
- Resimac Platinum
By using our Preferred Lenders ESUPERFUND is able to electronically access the loan transactions made by your SMSF in order to attend to the SMSF Annual Compliance Requirements. No bank records are required from you each year as we already have the data. It is important to understand that only electronic data files are provided to ESUPERFUND. In addition by using our Preferred Lenders, ESUPERFUND will ensure that all legal SMSF Loan requirements, which can be confusing and difficult to navigate, are adhered to.
Loan Application Process
Once your SMSF has been established by ESUPERFUND and you wish to borrow to acquire Residential Property for your SMSF, you can apply for an SMSF Loan using our panel lenders via the Client Portal. The Loan Process is detailed here.
Interest Rates and Fees
The Interest Rates for each Preferred Lender can be found here. While ESUPERFUND will constantly review our panel lenders SMSF Loan Interest Rates and Fees and update our website accordingly, you should always confirm the Interest Rates and Fees by reviewing the relevant Lenders website or by contacting the Lenders directly.
Permitted Property Types
At this time clients can only borrow to purchase Residential Property that has already been constructed. Clients cannot borrow to purchase Vacant Land. It may however be possible to borrow for an Off the Plan purchase where the construction will be completed at a later date. In this case you can use cash from your SMSF Transaction Bank Account to fund the deposit and once constructed the Lender will provide the balance of the purchase price. It is strongly recommended that you seek "Pre-approval" before placing a deposit on the Property to ensure that the Lender will lend for the purchase.
Lenders Mortgage Insurance
Lenders Mortgage Insurance is not payable on SMSF Loans taken out with any of our Preferred Lenders.
Maximum Loan to Value Ratio (LVR)
The current Maximum Loan to Value Ratio for each Preferred Lender can be found here.
Maximum Loan Amount
The Maximum Loan Amount for each Preferred Lender can be found here.
Minimum Loan Amount
The Minimum Loan Amount for each Preferred Lender can be found here.
Accessing Information by ESUPERFUND
Data for SMSF Residential Loans processed through our Preferred Lenders will be electronically accessible by ESUPERFUND alleviating you of the responsibility of maintaining these records at financial year end. Additional 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 we will request this from you as part of the annual Checklist Process.
Clients who have acquired a Residential Property in their SMSF, particularly newer properties, are able to legally claim depreciable items including carpets, furniture, fittings and so on. To maximize the depreciation tax claim it is advisable to prepare a Tax Depreciation Schedule for your SMSF relating to the Property Purchase. Please note that the Tax Depreciation Schedule must be prepared by a Quantity Surveyor. A Tax Depreciation Schedule is simply 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 for a newer property, depreciation claims may be in the thousands of dollars annually. So for example if your annual depreciation claim was $5,000 you will save $750 in tax annually (ie $5,000 x 15%). For further information on obtaining a depreciation schedule for your property click here.
Avoid Audit Issues
By having ESUPERFUND involved in the entire SMSF Loan Setup Process, you can be assured that all SMSF Loan requirements are adhered to. This ensures ATO compliance issues and associated penalties are eliminated and that client SMSF Loans are compliant with Super Laws.
Product Disclosure Statement
The Product Disclosure Statement for our Preferred Lenders should be carefully reviewed prior to applying for a SMSF Loan. The relevant Product Disclosure Statements can be obtained by contacting the Lender directly.
No Loan Advice Provided
ESUPERFUND (whether directly or via associated entities) is an execution only Loan Service. That is based on a review of the SMSF Loan Products available you are satisfied that the Lender is appropriate for your SMSF. By applying for an SMSF Loan using our Loan Service, we will assist you to obtain an approval for that selected Loan and attend to all associated paperwork. At no time does ESUPERFUND recommend that the selected Lender is the appropriate for your SMSF needs, objectives or circumstances.
Security Custodian Trust / Bare Trust Structure
When acquiring Residential Property using a Loan, the Residential Property being acquired must be purchased under a Security Custodian Trust. This Structure is also commonly referred to an Instalment Warrant Trust or Bare Trust. When you apply for a loan with our preferred Panel of Lenders via ESUPERFUND, we will arrange for the preparation of all the required documentation to establish the Bare Trust. It is important to understand that the Trustee of the Bare Trust must be a Company. If you have a Company as your SMSF Trustee, this Company cannot be used as the Bare Trust Trustee. The Company must be a completely separate Company. Further information on this Structure can be found in our Loan Theory section here
Separate Bare Trust Structure for each Property Purchase
A separate Bare Trust must be established for each Property that is acquired. You cannot buy multiple properties using the same Bare Trust Structure. Importantly however you are permitted to use the same Bare Trust Trustee Company to act as the trustee for each Bare Trust. This saves you the cost of establishing multiple Companies.
How to Complete the Purchase Contract
When acquiring Residential Property using a Loan, the Residential Property must be purchased in the name of the Bare Trust Trustee Company. All Directors of the Bare Trust Trustee Company must sign the Purchase Contract.
It is recommended that the Purchase Contract be signed "subject to finance".
You must not put the name of your SMSF on the Purchase Contract if you are borrowing to purchase the Residential Property.
If the Bare 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.
Bare Trust Setup Process and Fee
As detailed above a Bare Trust must be established for each Property that is acquired using borrowings. ESUPERFUND will arrange the setup of the Bare Trust for you when you borrow to buy Residential Property for your SMSF. ESUPERFUND has a one off fee of $500 to setup the Bare Trust. The Bare Trust must be setup only after the Loan has been approved. To apply for a Bare Trust with ESUPERFUND you will need to login to your Client Portal and apply online here.
Bare Trust Company Trustee Setup Process and Fee
As detailed above a Bare Trust must be established for each Property that is acquired with borrowings. The Trustee of the Bare Trust must be a Company. If you do not have an existing Company, ESUPERFUND offers a Company Setup Service. The cost of establishing a Company with ESUPERFUND is . In addition there is an additional annual ASIC Fee of payable directly to ASIC. Please note that you are not obligated to use the ESUPERFUND Company Setup Service and can arrange to setup a Company with any provider desired. The Company details can in turn be provided to ESUPERFUND when setting up the Bare Trust. The Company that will act as Trustee of the Bare Trust can be setup after the Loan has been approved but must be setup before the Property has been acquired (ie the Purchase Contract signed) as the Company will appear on the Purchase Contract. To apply for a Company with ESUPERFUND you will need to login to your Client Portal and apply online here.
Can your SMSF use other Lenders?
Yes. It is not compulsory to use our Preferred Lenders and you are permitted to use other Lenders to purchase Residential Property if desired. However if you elect to arrange your own SMSF Loan with another Lender, ESUPERFUND will not be involved in the SMSF Loan Process and we will be unable to assist with the setup of the Bare Trust. Accordingly you will be responsible for ensuring this structure is setup correctly and all ATO laws followed. Where you elect to use another Lender and arrange your own Bare Trust structure and ATO Laws are not correctly followed, this will be your responsibility including meeting any associated penalties imposed by the ATO.