Looking to purchasing property in your SMSF? James Power can assist - Over 20 years SMSF experience

Buying property through your Self Managed Super Fund (SMSF) can be an effective way to build wealth for your retirement. But it can be a very complex process. With over 20 years working with self-managed superannuation funds, James is uniquely placed to work with you, your accountant, your financial planner and solicitor to ensure your SMSF lending strategy is executed correctly and efficiently.

 

Investing in property through your SMSF

Australians love investing in property, however high lender servicing requirements has made this more difficult. Investors have therefore looked for alternate ways to build wealth through property, such as through a Self-Managed Superannuation Fund. Some of the reasons property investors may choose to invest in property through a SMSF include:

• Control – the very name ‘self-managed’ suggests the very reason why investors look to start their own SMSF….they want control with where and how their retirement savings are being invested, and feel they do not get this from their retail or industry managed super funds.
• Transparency - SMSFs have a very transparent fee structure (you appoint your own accountant, administrator, auditor and advisor) and a very transparent investment process (you choose the investments you understand and are comfortable with, to the extent that it fits in with your SMSF’s investment strategy, which you are responsible for formulating)
• Maximise borrowing power – property investors can invest in property through their SMSF without it impacting their personal borrowing capacity in most circumstances. Conversely, an investor may still be able to purchase a property in their SMSF even if their personal borrowing capacity is insufficient
• Capital gains tax benefits - when it comes time to sell the property, the tax rate of superannuation is lower (between 0% and 10%) compared to outside superannuation (marginal rate less applicable capital gains tax discount)
• Land tax thresholds – due to an SMSF being a different entity, it has a separate land tax threshold to the individual members

 

Commercial / business real property

If you own your own business, purchasing your business premises in your Self-Managed Super Fund (SMSF) can be a great way to both own your own business premises and to save for your retirement. Some of the reasons why business owners look to implement this strategy include:

• Asset protection – subject to some exceptions, superannuation can generally provide a level of protection from creditors under bankruptcy law, presenting SMSF members with an opportunity to protect certain assets such as business real property
• Income tax benefits – the tax rate of superannuation is lower than other tax structures, providing tax planning opportunities. For example, a company (taxed at 25%) receives a deduction for rent paid to the SMSF, which is taxed at 15% (0% in pension phase)
• Capital gains tax benefits – when it comes time to sell the property, the tax rate of superannuation is lower (between 0% and 10%) compared to outside superannuation (marginal rate less applicable capital gains tax discount)
• Becoming your own landlord – your business will be paying rent to your SMSF rather than to someone else, thereby funding your own retirement
• Security of lease – where your SMSF owns the property, you are effectively your own landlord, which eliminates relocation risk and provides flexibility regarding fit out options

 

Important considerations

While buying property through your Self-Managed Super Fund (SMSF) can be an effective way to build wealth for your retirement, there are several factors (not exhaustive) that need to be considered:

• Diversification – as property tends to be a large, lumpy and illiquid asset, a liquidity issue may occur where a SMSF needs to access a large amount of cash quickly. For this reason, trustees are required to consider diversification when formulating an investment strategy
• Administration and compliance – with control comes responsibility. In a retail or industry super fund, the trustees are responsible for administration and compliance, including monitoring the fund’s investments. With a SMSF, the members are the trustees, so are responsible for administration, compliance and monitoring the fund’s investments (even though professionals are often engaged to assist, this is still the trustee’s responsibility)
• Annual valuation – property needs to be valued at market value each year in the SMSF financial statements, and the value must be based on objective and verifiable data
• GST registration – the SMSF is required to register for GST if it invests in a commercial property (including business real property) and its earnings are in excess of $75,000 pa
• Difficult to unwind mistakes – some of these mistakes include purchasing the property before the SMSF is set up and paying the deposit personally instead of through the SMSF
• SMSF loans tend to have a higher interest rate due to their limited recourse nature
• SMSF loans typically do not have redraw or offset accounts, with some exceptions
• SMSF trustees are unable to acquire residential property from related parties*
• SMSF trustees are unable to lease their SMSF residential property to related parties*
• SMSF trustees are unable to make improvements to SMSF properties using borrowed funds
• SMSF trustees are unable to create a charge over SMSF properties (meaning any equity built up in the property cannot be utilised to purchase more property)

* Business real property exemptions may apply

 

It is critical to use an expert

James Power has over 20 years experience working with self-managed superannuation funds, across audit, accounting, financial planning and lending. There are very few Mortgage Brokers in Australia with this extensive breadth of knowledge and experience, which is critical to ensure your SMSF property strategy is financed correctly without the risk of penalties now and in the future. James is one of the very few Mortgage Brokers in Australia who has attained the SMSF Specialist Advisor™ designation, which is the Gold Standard for SMSF Excellence. 

 

Get in touch with James Power and the team today! Call 1300 194 750 or book an appointment below.

Call: 1300 194 750 Book an appointment