Like other superannuation (super) funds, self-managed super funds (SMSFs) are a way of saving for your retirement. The difference between an SMSF and other types of funds is that, generally, the members of an SMSF are also the trustees. This means the members of the SMSF run it for their own benefit.
The ATO is the regulator of SMSFs.
Do it yourself Super
Some people want the hands-on control that comes with a self-managed super fund (SMSF). Of course, with added control comes added responsibility and workload.
One of the big new trends in our marketplace today is the increasing number of investors buying property with their self managed super funds (SMSFs).
Just like the First Home Owners’ Grant prompted more first homebuyers to get into the property market, more people are taking advantage of the opportunity to borrow up to 80 per cent of a property’s value through their SMSF to buy an investment.
SMSF property investing is becoming more popular because there are very strong rental returns available, the costs have dropped and quite simply, more people are realising the benefits.
On paper, buying property with your super sounds like a great idea and there are definitely many benefits. But, there are also many rules and regulations so it is important to obtain some independent advice from a qualified professional. Here are some of the advantages and disadvantages.
Advantages
- If you buy a property with your super fund and hold the property until after you retire and your super goes into the pension phase, you pay no tax on either the capital gains if you sell or the rent if you continue to hold your investment.
- Before retirement, capital gains and rent earned by your SMSF are taxed at only 15 per cent (if you hold the property for more than a year, this drops to 10 per cent on capital gains)
- Direct control of your super investments and a real understanding of where your money is invested.
- Diversification in your portfolio.
Disadvantages
- If you borrow to buy property through your super and you’re negatively geared, the tax offset only applies to other income earned within the fund – not your regular income.
- You can't live in the property and neither can any friends or family members.
- You can’t renovate a property purchased through a SMSF while it is still under a loan.
- There are thousands of dollars in set-up costs and there are sometimes higher fees involved in getting a loan through your SMSF.
- Running a SMSF is complicated and penalties for getting things wrong are high. However, you can pay a professional to run it for you.
- Buying property through a SMSF is generally only suitable for funds with $200,000 in combined funds.
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Buying property through super is a great way to invest for retirement but it’s probably more relevant for people who are only 20 to 25 years away from it. Not only do they have more super money at their disposal, they are also more likely to be able to hold the property until after retirement to realise those big tax savings.
Platinum Brokerage Group has access to Lenders who offer SMSF Loan for both Residential and Commercial Property. We will also work with your preferred qualified professional to ensure the loan is structured correctly and meets your requirements.
If you are considering purchasing property through your SMSF, then you need to take into account the SMSF Property Rules, as you can only buy property through your SMSF if you comply with the rules:
The property:
- Must meet the 'sole purpose test' of solely providing retirement benefits to fund members
- Must not be acquired from a related party of a member
- Must not be lived in by a fund member or any fund members' related parties
- Must not be rented by a fund member or any fund members' related parties
However, your SMSF could potentially purchase your business premises, allowing you to pay rent directly to your SMSF at the market rate.
Please note that the services provided by Platinum Brokerage Group, in regards to SMSF, is limited to SMSF Borrowing. We recommend that you seek professional advice on SMSF’s from a financial planner or accountant before making any decisions. |
