Have you ever wondered about buying a residential property through your SMSF, but aren’t quite sure how to go about it? Changes to super legislation in 2007 enabled SMSFs to borrow money to purchase property. This has resulted in a substantial increase in property being purchased through SMSFs.
Buying through your SMSF can provide tax benefits; however, it is important you are aware of the obligations and risks associated with purchasing a residential property in this way.
Put simply, you can buy a residential property using you SMSF provided that you are not buying the property from a related party of a fund member and the property is not your family home. You are able to purchase a residential property and rent it out to unrelated tenants.
A benefit of an SMSF is that you can invest directly in residential property using your own superannuation. Owning an investment property through your superannuation can create a range of tax benefits that aren’t available if you are buying in your own name. Your accountant can explain the tax advantages to you.
Not surprisingly, with so many benefits on offer, there are many rules which regulate the purchase of property using your SMSF. These rules include that the property:
While residential purchased must be an arm’s length transaction, if you are purchasing commercial property there are circumstances where you can purchase from yourself or a related party. There are instances where a SMSF can rent commercial property to a member or related party. Again, your accountant or financial advisor can fill you in on these benefits.
If you are considering purchasing property with your SMSF it is a good idea to have your SMSF in place before looking at properties. The process of setting up an SMSF can be lengthy and you could miss out on the property you’d like to buy in the time it takes to set up the SMSF.
It is also important that you go into purchasing property with your SMSF with eyes wide open. You should seek specialist advice from your business, financial and legal advisers. A great place to start is https://www.moneysmart.gov.au, which provides a basic overview of the potential risks and obligations required of you. Be aware that there are costs associated with an SMSF property purchase, many of which can deplete your super balance if not carefully managed.