SMSF investing in Australia through a self-managed super fund (SMSF) has grown in popularity in recent years, particularly since it became possible for SMSFs to borrow money to fund a direct property purchase.
This is an area where you really do need to make sure you know what you’re getting into. Here is our guide to buying property through your SMSF.
Property purchased through an SMSF cannot be lived in by you, any other trustee or anyone related to the trustees – no matter how distant the relationship.
It also cannot be rented by you, any other trustee or anyone related to the trustees. So, buying a holiday home in your SMSF and living there during the summer is not allowed.
Further to this, you cannot put an existing residential investment property you have into an SMSF – either by way of the fund purchasing it at market value, or contributing to it within the cap limits.SMSF investing in Australia
If you buy a property through an SMSF, the fund is required to pay 15% tax on rental income 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 10%.
If the property is purchased via a loan, the interest payments are tax-deductible to the fund. If expenses exceed income there is a taxable loss that is carried forward each year and can be offset on future taxable income.
Once trustees start receiving a pension at retirement, any rental income or capital gains arising in the fund will be tax free.
Note also, that if you make a loss on your property, any tax losses cannot be offset against your personal taxable income outside the fund.
You can only buy a property through your SMSF if you comply with the rules.
The property must:
If your SMSF purchases a commercial premise, it can be leased to a fund member for their business. However, it must be leased at the market rate and follow specific rules.
SMSF property sales may have many fees and charges. These fees can add up and will reduce your super balance.
Find out all the costs before signing up.
Ongoing property management fees
Be wary of fees charged by groups of advisers who recommended each other’s services. It is important to get independent advice. Anyone who gives advice on an SMSF must have an Australian financial services (AFS) licence. ASIC Connect’s Professional Registers will tell you if the company or person holds an AFS licence.