Looking to buy property with your SMSF?
Here is what you need to know if you are looking to purchase Property with your SMSF
Self-managed super funds (SMSF) are now the largest sector in the Australian Superannuation Industry.
Purchasing property with a SMSF isn’t the latest in innovation, but the concept of borrowing to purchase is relatively new. The capacity to borrow means that people are now able to use their SMSF to invest in properties that they may not have previously been able to afford.
Purchasing property through your SMSF can be a difficult topic to comprehend. Before we look at the complexities let us outline the advantages.
If you buy a property through an SMSF, the fund will pay a maximum 15 per cent tax on rent it receives from the property. On properties held for longer than 12 months, the fund receives a one third discount on any capital gain it makes upon sale, bringing any capital gains tax liability down to a maximum of 10 per cent.
Once fund members start receiving a pension at retirement – assuming they’ve held the property in the fund for this long – the fund will no longer pay tax on either rental income or capital gains when the property is sold.
Rules associated with buying property through your SMSF:
1. Must meet the “Sole Purpose Test”;
2. Must not be acquired from a related party of a member;
3. Must not be lived in by a fund member or any fund members’ related parties;
4. Must not be rented by a fund member or any fund members’ related parties.
Your SMSF can potentially purchase your business premises, which would allow you to pay rent directly to your SMSF at the market rate.
You said my SMSF can borrow?
As mentioned earlier you are now able to borrow to purchase with your SMSF. Borrowing must be done under very strict borrowing conditions called a “limited recourse borrowing arrangement”.
Limited recourse borrowing can only be used to purchase a “single asset”. It is important to note that no alterations can be made that change the character of the property until the SMSF property loan has been repaid.
How can Duffy Elliott Lawyers Help?
If you are interested in buying a property and would like to explore the idea of purchasing with your SMSF Duffy Elliott Lawyers is well versed in the area of SMSF property investment. We will work closely with your accountant to assist you in your next property investment.