The modern SMSF we know today was first introduced within the Australian Superannuation industry back in October 1999 as a tax exception fund that can be established to benefit the employees of any kind of business. Fast forward to today and SMSFs (self-managed super funds) have become the largest super fund sector in Australia and it continues to grow with thousands of SMSFs set up each year. One of the main reason for the continuous growth of this type of super fun is the flexibility it provides Australians to control their investment strategy and boost the retirement savings, rather than give that control to a super fund manager.
Making investments in property through a SMSF can be smart strategy for increasing retirement savings and getting the most from the tax deduction benefits that apply to this type of super funds. That’s why more and more people are becoming interested in SMSF property investments and the rules that apply for them. The Australian Taxation Office (ATO) is responsible for regulating all SMSF, and as such it also sets out all the rules and regulations that fund members must follow to make sure their SMSF is eligible for contributions and tax deduction.
While before people couldn’t borrow through their funds to make investments, the rules have changed and since 2007 you can take self managed super fund loans with the purpose to buy residential or commercial property. It’s essential to know that investing in property within your SMSF is, in many aspects, different than making standard investments outside the superannuation sector. You can borrow money to buy a single property or a a collection of identical assets which have the same value on the market. You can usually barrow up to 75% of the asset’s market value, with the rest of the money should be provided by the super fund. As a SMSF member and trustee you will receive the beneficial interest in the purchased property, however the legal ownership will be held on a trust.
Before you decide to get self managed super fund loans for your investment strategy, it’s important to first consider in what kind of property it would be best to invest the money. Keep in mind that you can’t live in a residential property that is purchased through an SMSF. The only purpose of the property purchase must be to support your investment strategy in boosting your wealth for retirement. You can only make a property purchase through your super fund if you follow these rules:
The property must comply with ‘sole purpose test’, which states that all investments should be made with the sole purpose of providing retirement benefits to the trustees.
The fund members are not allowed to rent the property.
The property, whether it be residential or commercial, cannot be a a vacant land.
A residential property cannot be purchased by any other related party to the SMSF, such as your business partner or your spouse.
Making investments in overseas property is allowed, but only if you’re familiar with and fallow the laws in that specific country.