Property in a Self-Managed Super Fund

With a recent 66% surge in the number of new self-managed super funds (SMSF) being set up, more and more people are asking how you can purchase a property with a SMSF. And there are several benefits in owning property in a SMSF. These include proceeds are tax free after age 60, the fund only pays 15% tax compared to most people paying 30% or even 40% income tax, the fund is protected from creditors and estate planning can help reduce any capital gains tax.

Property in a self-managed super fund can be a very powerful tool if set up correctly.

There are 2 main options.

You can purchase property in a self-managed super fund either built new or purchase established.

To purchase an established property in a self-managed super fund, you will need to have the fund set up so that the fund can purchase the property. You either need the cash already in the fund (and you can buy new or established) OR if you are going to borrow the funds, you need a limited recourse loan to purchase a single asset (an established property).

With a Limited Recourse, you will need to have the full amount of funds in the SMSF to be able to pay the drawdown as they are requested by the builder.

Obviously, you need appropriate insurances to cover for death and/or disability as lenders are facing a higher risk in lending money.

All properties must be at arm’s length (that is, you must purchase the property at commercial values from a non-relative, except your own business premises) and all rent must be paid into the super fund. The super fund must pay all mortgages, taxes, council rates, insurances etc.

The disadvantages are, the cost and regular audits, compliance issues, limits in what you can invest in and the ATO auditing.

The most important thing to do is to get the proper advice before you proceed from a qualified Accountant or Certified Financial Planner.

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