Purchase Property in SMSF
Purchasing Property Through SMSF: What You Need to Know
One of the most frequent questions we get is, “Can I use a Self Managed Super Fund (SMSF) to buy property?” The short answer is yes—purchasing property through an SMSF is possible. However, there are many factors to consider. That’s why it’s crucial to consult with an SMSF specialist like iCare Super to understand all aspects of the process.
Why Choose iCare Super for SMSF Property Purchases?
iCare Super is your local expert in SMSF property investment. We understand the complex rules and regulations that govern SMSF property purchases, ensuring you remain compliant while enjoying the benefits.
Key Rules for SMSF Property Investment
When buying property through an SMSF, there are specific rules to follow:
- Sole Purpose Test: The property must solely serve to provide retirement benefits to SMSF members.
- No Related Party Transactions: You can’t purchase the property from a related party of any SMSF member.
- No Personal Use: Neither SMSF members nor their related parties can live in the property.
- No Leasing to Related Parties: The property cannot be leased to SMSF members or their related parties.
However, you can use your SMSF to purchase a commercial property that serves as your business location. In this case, you would pay rent to your SMSF at the market rate.
Benefits of SMSF Property Investment
There are several advantages to using an SMSF for property investment, including:
- Borrowing Power: SMSFs can borrow to buy property, even if the value exceeds available funds.
- Tax Benefits: Rental profit is taxed at just 15% during the accumulation phase, and there’s no tax in the pension phase if certain conditions are met.
- Capital Gain Tax Savings: If the SMSF meets certain conditions, no capital gains tax applies when selling a property during the pension phase. In the accumulation phase, SMSFs only pay 10% capital gains tax.
- Flexible Funding: Mortgage repayments can be made using rental income, SMSF investment earnings, and member or employer contributions.
What Types of Property Can an SMSF Buy?
An SMSF can purchase both residential and commercial properties. Residential properties must be acquired at arm’s length from unrelated parties, while commercial properties can be purchased from related parties.
Can an SMSF Borrow to Buy Property?
Yes, SMSFs can borrow to purchase real estate under a Limited Recourse Borrowing Arrangement (LRBA). This protects other SMSF assets in case of loan default, as the lender can only claim the secured property.
Steps for Investing in Property Through an SMSF
- Check your trust deed to ensure borrowing is allowed.
- Ensure the investment aligns with your SMSF’s strategy.
- Set up a custodian trust to hold the property on behalf of the SMSF.
- Purchase the property or transfer your own commercial property into the SMSF.
- Rental income is paid directly to the SMSF, and loan repayments are made as usual.
- Once the loan is fully repaid, the property title transfers to the SMSF.
SMSF Costs to Consider
When purchasing property through an SMSF, you should be aware of potential fees such as:
- Advice fees
- Bank fees
- Legal fees
- Property management costs
- Stamp duty
- Upfront fees
At iCare Super, we ensure full transparency by disclosing all fees and charges upfront.
Why Choose iCare Super?
At iCare Super, we provide comprehensive support for SMSF property investments. Whether you’re seeking a loan or need guidance on SMSF property rules, our team is here to help. Contact us online or call us at (03) 9557 4079 to learn more about purchasing property through your SMSF.