A growing number of investors are realizing the opportunity presented by being able to purchase property through their SMSFs. Here at Royal Capital we specialize in guiding our Private Wealth members in the right direction when it comes to making this type of investment.
Purchasing property is a great way to add some diversity to your SMSF. You can purchase properties such as residential, commercial, retail, rural and holiday apartments.
Up until 2007 super funds could not borrow or charge their assets. However following amendments made in 2007 SMSFs can borrow provided the borrowed funds are used to purchase an asset such as real estate; the asset is held on trust for the SMSF by another entity (typically the Property Trustee); the SMSF has the right to acquire legal ownership of the asset by making payment, and the lender’s recourse against the SMSF must be limited to the underlying asset (i.e. the purchased property). In other words, the lender cannot have a right of recourse against other assets of the fund.
As the owner of the property and the borrower of the loan, the SMSF is responsible for all expenses one would normally expect associated with the purchase of an investment property. That is, whatever expenses you would have been responsible for had you borrowed money in your own name rather than your super fund – you are responsible for. As owner of the property your SMSF is responsible for any council rates, water rates, land tax, interest and other loan repayments; lender’s fees; repairs; property management costs; and any insurance premiums, and management fees imposed by the Property Trustee.
Some of the benefits of purchasing property through your SMSF include a tax rate of only 15 per cent during the accumulation phase which drops to 0 per cent in the pension phase. This can potentially result in large CGT savings, compared to being taxed at marginal tax rates up to 46.5 per cent if the property is personally held.
In addition assets in the SMSF are secure as the lender only has recourse on the investment property, plus any additional security provided by the guarantor. If rental property is purchased the loan is paid off by using super contributions and rental income; and the SMSF is only taxed at the net income after loan interest and expenses are deducted against the rental income.
The number of Australians choosing to manage their own super through a self managed super fund (SMSF) is far greater than you might think. At 31 March 2010 the total superannuation assets in Australia was $1.26 trillion and SMSFs held the largest proportion of superannuation assets accounting for over $400 billion or 31.8 per cent. There are currently over 422,000 SMSFs with an estimated 2,000 new funds being established each month.*
Of course there is much more to this scheme and it is extremely important that investors get expert advice before moving forward. At Royale Capital our team of investment professionals is available to help all our clients make sure that property investment is the right option for them and also that they comply with the many requirements and regulations.
To learn more about all the services offered by Royale Capital and our Private Wealth program.
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Jason Burrows is professional author. He has written many articles for Royale Capital. This time he writes article on How To Purchase Property Using Your SMSF
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