Benefits of buying Property in SMSF
Some of the potential benefits of buying property through a SMSF include the fact that the fund will pay a maximum 15 per cent tax on rent from the property. On properties held for longer than 12 months, the fund also gets a one third discount on any capital gain it makes upon sale. The remaining two thirds are then added to the fund’s income and taxed at the funds rate of 15 per cent, effectively providing a ten per cent tax rate.
Also, once fund members start receiving a pension at retirement – assuming they’ve held onto the property this long – they’ll pay no tax on either rental income or any capital gains tax when they sell.
Setting up the SMSF
If you want to buy a property in your Self Managed Super Fund (SMSF) it is best to setup the SMSF prior to looking at properties, as the process can be quite lengthy.
It is important to do your research. A good place to start is The ATO website https://www.ato.gov.au/Super/Self-managed-super-funds/
There is a company called Squirrel SMSF who I can personally recommend, that will help you set up the fund at a reasonable rate, attend to all your fund’s annual compliance requirements and has established direct arrangements with a number of Lenders allowing clients to easily apply for an SMSF Loan online.
Rules to consider
There are strict rules governing what money borrowed through an SMSF can be used for. For example, spending borrowed money on repairs and maintenance is ok, but spending borrowed money on anything deemed to be an ‘improvement’ is not allowed. While improvements to the investment property are allowed, they must be funded using other money in the SMSF (such as money from member contributions) and not any funds the SMSF has borrowed.
You can NOT purchase your family home in a SMSF, as this would contravene the ‘sole purpose’ test and put your SMSF in danger of non-compliance. Your SMSF needs to be a arms length.
Interested in buying a property in your SMSF?
After understanding what your needs are, and agreeing on a brief for us to work to, a small retainer fee is payable to engage our services. We also charge a flat rate success fee for properties under $1 million and a small percentage over $1 million, which is only payable upon the purchase of a property that you love. There are no other hidden costs, and as we are boutique agency, our fees are very competitive.