| 02 9982 2466

Acquiring property through an SMSF

Members of a self-managed superannuation fund (SMSF) looking to acquire property through the fund need to be aware of the risks involved in the strategy or risk substantial penalties.

One of the considerations investors should be making if they are deciding to put a property in their SMSF is whether the strategy will improve retirement outcomes. Ultimately, investment decisions, such as the aforementioned strategy, will have ramifications for whether members have a comfortable retirement or need to rely on government support.

SMSF members should also consider the liquidity of the current assets in the fund. As property is a large, illiquid asset the fund should have enough cash on hand to pay day-to-day expenses. If the property is the only asset in the SMSF and it is in pension phase, it may not be able to supply a sufficient retirement income to its members.

Members purchasing property through debt have several restrictions on their investment under the limited recourse borrowing arrangement (LBRA). To establish an LBRA, a 20 per cent deposit is required and enough money to cover stamp duty and legal expenses within the SMSF, or ready to roll over from another super fund.

The fund will be assessed on its borrowing potential based on members’ superannuation contributions and the rental income from the property. Lenders will often require a personal guarantee from the SMSF trustees as the lender can repossess the property if an SMSF cannot meet its repayments.

In addition, if property is purchased using debt any improvements made to the property cannot change the nature of the property. Improvements must be paid for by cash in the fund rather than using further borrowings to pay for expenses.

Investors need to ensure they meet the obligations of the fund, such as having sufficient cash held in the fund. If the member isn’t receiving contributions, or the property is vacant for a period, then the fund will risk becoming a non-complying fund and may face severe penalties.

Posted on 4 April '16 by , under Super.

Leave a Comment

You must be logged in to post a comment.

Join Our Mailing List!

Subscribe to our mailing list to receive all the latest financial newsletter updates as well as information on important dates on our business calendar.

Recent Updates

Firm News

What to consider when consolidating your super

The ATO reported that 45% of working Australians were not aware that they had multiple super accounts in 2016. Having multiple super accounts is particularly common for individuals who have had more than one job. If this is you, it is important to identify and manage your super accounts because having more than one can be costly as a result of account fees from multiple funds.To combat this, you may want to consolidate your super, which moves all your super into one account. Not only does this save on fees, but it also makes your super easier to manage and keep track of.

Before consolidating your super, it is important to do the following:

Research your funds' policy
Compare your active super accounts so you can make the right choice about which one you should close. Things to assess include:

  • Exit fees
  • Insurance policies
  • Investment options
  • Ongoing service fees
  • Performance of the funds

Check employer contributions
Changing funds may affect how much your employer contributes, as some employers contribute more to certain funds. Check your current accounts to see if changing funds will affect this. Once you have selected a super fund, regardless of whether you choose a new super fund or one of your existing ones, provide your employer with the details they need to pay super into your selected account.

Gather the relevant information
When consolidating your super, you will need to have the following details ready:

  • Your tax file number.
  • Proof of identity. This could include your driver's license, birth certificate or passport.
  • Your fund's superannuation product identification number (SPIN).
  • Your fund's unique superannuation identifier (USI).
  • Details of your previous fund.

Business Calender