Property and Your Self Managed Super Fund

Property and Your Self Managed Super Fund



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Promoted by eSuperfund

A popular benefit considered by those who are contemplating setting up a Self Managed Super Fund (SMSF) is the option of using their fund to purchase property.

Using your superfund to invest in either residential or commercial property can grant you access to substantial capital gains in the long term, alongside immediate tax breaks – even exemption from capital gains tax on the final sale of the property, if you hold off until you commence an SMSF pension.

Is a SMSF property investment for me?

As part of an SMSF, you can purchase either residential or commercial property, providing they’re aligned with your established super strategy and you remain compliant with the laws that govern such purchases.

Diversifying your portfolio with a property investment can spread the risk across a wider range of assets. If you choose to take advantage of available loans, they’ll be a specific type of loan that protects your fund if you default on the repayments – so risk can be relatively well managed given the level of possible returns. These loans are known as Limited Recourse Borrowings. Any rental income you receive is only taxed at 15%, and you’ll also be able to take advantage of negative gearing on the property to claim tax deductions. In addition, if you choose to commence a pension once you reach preservation age, you can sell the property and not pay a cent of capital gains tax – a great bonus in anyone’s eyes.

What you can’t do

If you’re nodding your head and preparing to scour property sites, be wary of the tight regulations. Your property must meet all of the following stipulations:

  • The property must be for the sole purpose of growing your retirement fund and in no part intended for you or any related party to live in or lease at any time.
  • Your SMSF cannot purchase a property already owned by you or any related party, nor can it be a holiday home.
  • If you’re using a loan, the borrowed funds can only be used to maintain the property – improvements do not qualify.
  • Tax offsets can only be used on the fund’s income, and not your own – which differs from property investment outside of your superfund.

Consider the long journey

It’s important that you consider the long-term nature of an SMSF. You’ll only enjoy capital growth if you sell the property for more than you purchase it for, so if the market takes an unexpected downturn, you’ve got to be prepared to wait it out – or absorb a loss. Also, benefits like 0% income tax on rental yields and exemption from capital gains tax will only eventuate once you commence a pension. If you’re still relatively young, consider whether you’re prepared to wait until you reach preservation age for such rewards – and what the market may be set to look like by that point.

Get personalised legal advice

There are some in-depth and very complex regulations and laws that’ll apply to you and your fellow SMSF members if you’re looking to invest in property. Miss something and you could all face serious consequences, even if you simply omitted a detail by accident. It’s important to get bespoke legal and financial advice to ensure every aspect of executing your investment is fully compliant, and that you’re aware of the risks and benefits you’re exposed to.

To learn more about buying property in an SMSF, you can visit our website at esuperfund.com.au or download our free ebook today.

eSuperfund

eSuperfund

Based in Melbourne, we administer Funds for clients all over Australia. We have helped thousands of SMSF investors establish and manage their SMSF's since 2006. ESUPERFUND does not provide Investment Advice to clients as our clients are largely DIY Investors who prefer to make their own Investment decisions for their SMSF, rather than pay excessive fees to Advisors.

Property and Your Self Managed Super Fund
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