Get to know the rules and risks involved before setting up a self-managed super fund (SMSF) to buy an investment property.
Now, more than ever, people are using a self-managed super fund (SMSF) to purchase an investment property – commercial or residential – and are reaping the rewards in terms of tax benefits. If you’re looking to expand your investment portfolio, using an SMSF may be the way to go, but you need to do your homework.
You need to first figure out what you can afford, find a property that suits your budget (Alpha Property Buyer’s Agency is here to help), and organise finance. Before you take things further, it’s important to know the rules as outlined by the Australian Taxation Office and seek the advice of a financial planner, or you could be heavily penalised.
Firstly, what is an SMSF?
An SMSF is a superannuation fund that you run yourself instead of paying super contributions into an industry fund. SMSFs are maintained for the sole purpose of providing benefits to members upon their retirement – and not prior to it. The members of an SMSF are also the trustees of the SMSF (the fund must have at least one member and a maximum of 4). A bonus is that it allows you to use your super to purchase an investment property, but it is up to you to comply with superannuation and tax laws and to decide what to invest in.
What are the rules?
You can use your superannuation to buy an investment property that can be leased to an unrelated party. You cannot use your super to buy a house for yourself or for any of your relatives. You cannot purchase residential property from a related party of the SMSF, enter into a lease with a related party of the SMSF, or get any personal use out of the property that the SMSF owns. For example, you cannot rent your SMSF property to your children or use your SMSF to buy a holiday home.
How can I buy a property using an SMSF?
First things first: set up an SMSF. Of course, this implies that you have sufficient funds to purchase the property and take care of ongoing costs related to managing your superannuation. There are also other factors you need to take into account when considering super as an option for buying property, such as your age, income and contributions.
How do you benefit?
In addition to having more control over your own money, buying property through your super can provide significant tax benefits and bring down your taxable income. Using your SMSF to buy an investment property can save you thousands of dollars worth of capital gains to your retirement savings. Why is this? Tax on SMSF earnings is capped at 15% – it’s the maximum tax you pay on the property’s income. In addition, expenses like council rates, interest, insurance and maintenance are tax-deductible.
What are the risks?
It takes time and effort to manage an SMSF plus an investment property and you need to have specific business know-how to get the most out of your SMSF. You also need to keep on top of the compliance and legislation surrounding SMSF, which can be stressful. This is why it pays to hire the services of professionals like an accountant, a financial planner and a buyer’s agent to guide you along the way. Yes, you pay for their services, but it will save you thousands of dollars in the long run.
Source: https://moneysmart.gov.au/property-investment/smsfs-and-property
The team at Alpha Property Buyer’s Agency has the experience and expertise you need to buy property on your behalf. We will be with you every step of the way, from searching for properties that fit your needs and making objective decisions with the market knowledge we have, to managing all the negotiations to get the best price and bidding on your behalf at auction.
