Financing through your Self Managed Super Fund
Under recent Changes to Superannuation rules, borrowing to invest in property is now allowed within a Self Managed Super Fund (SMSF). This is great news for existing SMSF members, and a real incentive for those who may be considering setting up their own SMSF.
With an SMSF loan the astute investor has greater investment options within their super fund; geared lending for residential or commercial property or almost any other asset class that meets your fund’s investment strategy and financial goals.
How Borrowing in your Self Managed Super Fund Works
In many ways an SMSF loan works like any other investment loan, with benefits such as tax-deductible interest and other costs; whilst the income stream and even capital gains enjoy the favorable tax rates offered within Superannuation. Over time that can mean great savings and a big increase in your retirement assets.
Here’s how one investor – Malcolm , 52, of Bankstown – sees it: “I’ve always liked bricks and mortar investing as a way to grow wealth so the ability to make a SMSF loan and utilise the tax concessions available within super are really helping to grow my retirement nest egg.”
Superannuation investment is a carefully regulated area, because nobody wants to risk losing their valuable retirement savings, so naturally there are rules about SMSF loans and investing. Here are some of the general guidelines:
The Structure of your SMSF is Key
Before applying for a SMSF loan or investing, your fund must set up the correct trustee structure to meet the legal requirements for holding the loan. Your financial adviser should be able to arrange this for you.
Buying Residential Property within your Super Fund
Residential property bought using an SMSF loan may not be bought off a related party, or leased to a family member; it needs to be solely for investment purposes. And sorry you can’t buy a holiday house for your own use!
Buying Commercial Property within your Super Fund
Commercial property can be purchased from or leased through associates as long as all transactions are at proper commercial values.
Other Assets Protected
The specific nature of the borrowing permitted under an SMSF loan means that any other existing assets in the fund are protected and can not be forfeited in the event of a loan default.
Making Repayments on your SMSF Loan
SMSF Loan repayments would normally be funded from the income of the asset (eg property rent), which are paid directly to the fund, but can also be paid out of members’ contributions, or investment earnings of other assets held by the fund
Maintaining your Assets within the SMSF
Borrowings under the SMSF loan can even be used for the normal maintenance and repairs of the property, but not for developing or significantly ‘improving’ an asset.
What happens when the SMSF loan is paid off?
Once the SMSF loan is paid off, the property is owned by the super fund, and the members may decide to retain or sell it, depending on their financial objectives at the time. Remembering, any Capital Gains Tax is calculated at super’s concessional rate – this can be a huge saving!
As with most loans, the features, benefits and conditions can vary widely among different lenders. While SMSF loans are a relatively new product, a professional lender or broker with a track record in investment lending is the best place to start.
At we offer you peace of mind by ensuring your financial needs, goals and future plans are carefully considered across a range of loans, available from a trusted selection of lenders, to find the best fit for your circumstances.
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