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Can a self managed super fund (SMSF) be used to buy a house?

By Andrew Bell

In recent years, it has become increasingly popular to use Self Managed Super Funds (SMSFs) to buy property. However, people should know that this requires careful consideration. As with all types of investments, you need to ensure the purchase supports your overall investment strategy and avoids unnecessary risk.

What exactly is an SMSF?

An SMSF is a savings account for your retirement that you manage yourself, rather than one that is managed by a superannuation provider. This DIY fund offers you certain tax benefits and also gives you more control over your account by keeping you closer to the decisions on the investments you make.

The downside is that SMSFs come with a lot more responsibility, since you’re the one in control and you’ll need to ensure everything is set up and managed properly.

Can you use your SMSF to buy property?

Yes. SMSFs can be used to buy investment properties and have, in fact, become a popular choice for Australians looking to pay for property in recent years. A self-managed fund can even use borrowed monies to purchase a single asset – or a collection of identical assets that have the same market value, which is done through Limited Recourse Borrowing Arrangements (LRBAs). This purchase method involves the SMSF trustee receiving the beneficial interest in the purchased asset, while the legal ownership is held on trust.

What are the advantages of SMSF investment?

Firstly, your super fund will be taxed at only 15 per cent, which is considerably lower than the average personal tax rate. Secondly, your capital gains tax will also be discounted. If the property is sold during the accumulation phase, the capital gains tax is calculated at a discounted rate. If the asset is sold while the super fund is in its pension phase, you won’t have to pay tax on the sale.

What are the rules?

The most important rule to know is that you cannot buy a residential property through your SMSF if you (or any of your family members) intend to live in it. In other words, the SMSF trustee, as well as their relatives and the fund’s members, cannot benefit from the property. Which means, you can invest in a residential property but only to rent it out. There are also several other important rules, including:

  • The property must pass the sole purpose test, meaning it is maintained for the purpose of retirement benefits for its members
  • The property cannot be lived in by a person or entity related to the member
  • The property cannot be bought from a related party
  • The property is not rented by a person or entity related to a fund member

Ultimately, the question of whether you should buy property with your SMSF comes down to making a rational investment decision based on facts and advice.

To begin with, you may want to ask yourself the following questions about your prospective investment:

  • Is the property a good investment?
  • Will it appreciate in value?
  • What are the risks?

The Ray White Surfers Paradise Group

The Ray White Surfers Paradise Group provides a wide range of property services across the Gold Coast and has achieved the position of the number one international sales office in the entire Ray White network for 28 consecutive years. Offering premium Gold Coast, national and international real estate our 250-strong team covers an area stretching from Yatala in the north down to Tweed Heads in the south.

For expert advice on purchasing property with your Self Managed Super Fund and more, contact us today.

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