Purchasing property in a super fund that is self managed SMSF
In recent years, using an SMSF to purchase property has become common, but you need to make sure you understand how your investment will be influenced by purchasing through an SMSF. This could also grant investors more buying power in their SMSF with the changes in this year's Federal Budget to accommodate up to six participants in an SMSF, but you have to be cautious of how you arrange the deal and asset ownership among the members of the fund. In this post, we look at the purchasing of a property from an SMSF, the main requirements and SMSF property rules.
How is it possible to purchase property from an SMSF?
By using the funds in your SMSF or using part of your super balance to borrow for a single asset purchase or similar assets of the same market value, you can buy investment properties via an SMSF.
Via a Restricted Recourse Borrowing Agreement (LRBA), investing for investment properties with an SMSF may be achieved. An LRBA encourages SMSF trustees to have a beneficial interest in a trust owned in an estate of legitimate ownership. It protects the super fund and limits how debtors, if you default on your loan, can reclaim funds.
Considerations if you are involved in buying from an SMSF
You need to weigh a few main considerations before you purchase an investment property with an SMSF. If you don't even have a fund set up, you'll need to identify what type of property will be acceptable to purchase and if it's worth setting up an SMSF to buy property.
Benefits of purchasing investment property with an SMSF
A variety of tax benefits are provided when purchasing an investment property via an SMSF. Super funds are levied at 15%, which is far lower than Australia's overall federal marginal tax rate (30 percent). For assets bought by an SMSF, concessions may also be available for the capital gains. In the accumulation period, whether you sell a property, capital gains will be measured at the 33.3 percent discount rate. In the pension process, the assets sold would not be liable to CGT.
Purchase from an SMSF of residential property
If you use your SMSF to purchase residential land, you can not live on the property, and a family member can not live on the property either. Only in the market will investment properties be leased out as normal investment properties.
What if you don't have enough money for a deposit in the Mega Fund?
You can explore a Tenants in General (TIC) agreement if the super balance is too poor or you don't want to borrow using an LRBA. This helps you to break the debt between your primary place of residence and your super fund for a home. If you're trying to purchase a $500,000 house, for example, you might borrow $250,000 from your family home and use your super fund for $250,000. With this alternative, you may need to decide if your family home loan is sufficient for your condition and risk appetite.
Make sure you talk with trained financial and legal practitioners before you purchase property via an SMSF to ensure that this strategy is acceptable for you.
Note this article is not financial or legal advise. Please check with your financial and legal specialist counsel before making any decisions of your own.
For further information about real estate in this area, contact No Bull Real Estate, your most reliable and friendly real estate agents in Newcastle and Lake Macquarie. Buying, selling, leasing for residential, commercial, industrial property, contact your local expert to buy, sell or lease today on 49552624 or https://www.nobullrealestate.com.au