Buying properties with your SMSF
One of the best ways to build wealth for your retirement is by investing in properties, as prices tend to double every 15-20 years by looking at historical trends.
For investors with a self-managed super fund (SMSF), investing in real estate is fantastic for your fund’s growth, diversification and risk management. Whether you’re buying a residential or commercial property, it is a good asset to build wealth for your retirement.
The Essentials of a SMSF Loan
A SMSF can get a loan to buy properties. However, there are different rules that apply to SMSF loans compared to other types of loans. The rules determine your investment strategy, the type of property you buy and the investment mix of your SMSF. You will face a heavy penalty if your SMSF breaches the regulations.
A SMSF loan is bound to the limited recourse borrowing arrangement (LRBA). Highlights of the LRBA include:
- The asset must be held by a nominated trust, not the SMSF. The transfer of title only happens after the loan is fully repaid.
- The property must be a single acquirable asset. This may mean a single property, or a few properties on one title such as multiple units on one plot of land.
- You can’t carry out major renovations or works that will improve the property and its value significantly.
- In the event of a default, the bank or lender can only repossess or sell the property on loan, and can not touch any other assets in the SMSF
All borrowing costs, loan repayments, and other fees such as council rates, insurance, maintenance and repairs must be paid by the SMSF. This means your SMSF should have enough money to manage the property without depleting its resources – and your retirement plans.
In terms of taxation, SMSF gets lower tax rates and better tax incentives compared to individuals or companies.
- While still in accumulating phase, which means pre-retirement, the tax rate on any income from the property is 10%. The Capital Gains Tax, if the property is sold after a year, is only 15%
- During pension phase, which is during your retirement, the tax rate is NIL. The capital gains tax does not apply during this phase. This means you get to keep all the profit from the sale of the property in your SMSF.
Why work with us?
- We offer personalised advice
- We can help set up your SMSF
- We offer tailor made investment strategies
- We’ll ensure you are compliant to the latest law and regulations
- We do all the hard work and paperwork for you