Thousands of Australian investors have control of their super funds and are using them to invest in property.
According to figures from the Australian Taxation Office, as of March 2020, Australia had 586,773 Self Managed Super Funds (SMSF's) with over 1.1 million members.
SMSF's are established by one to four people for the sole purpose of providing retirement benefits. The key point of difference between a SMSF and a retail, corporate or industry super fund is the member's ability to have some control over the assets invested at arm's length.
In the context of property investment with a SMSF, a residential or commercial property can be purchased. Some rules do apply to such purchases; specifically, the property must:
- Meet the "sole purpose test" of solely providing retirement benefits to fund members.
- Not be acquired from a related party of a member.
- Must not be lived in by a fund member or any fund members related parties.
- Must not be rented by a fund member or any fund members related parties.
The property cannot be the residence of a fund member or used as a holiday home and is solely purchased for investment purposes.
If a SMSF purchases a commercial property, a member can pay market rent to the fund for their business to operate from the premises. You can also transfer commercial property that you already own into a SMSF. This may allow you to unlock cash or invest in your business or other assets.
When it comes to purchasing a property with your SMSF, the following conditions and benefits exist:
- Post-retirement: you will pay no tax on the capital gain if you sell or on the rent if you continue to own it.
- Pre-retirement: rent is taxed at 15 per cent, rather than rates of up to 47 per cent.
- Property held by a SMSF are protected against general debt recovery and bankruptcy proceedings (this does not apply to the loan with which the property was purchased).
- Depreciation and other expenses such as interest, rates, and maintenance fees are claimable within an SMSF.
- Renovating a property purchased through a SMSF is not allowed whilst there is money borrowed against it.
- Buying property with a SMSF could impact your personal portfolio if you are required to contribute more money to cover expenses. It is essential to select a property that matches your SMSF capacity for income and expenses.
Disclaimer - Our content is intended to be used and must be used for informational purposes only. It is imperative to do your research before making any investment based on your circumstances. You should consult independent financial advice from a professional connection before making any investment decisions.
For a free copy of our Property Investors Guide or an obligation-free chat, email our Director, Casey Healey, at casey@c21newcastle.com.au or phone 02 4928 7400 today.