Mixing property and your self-managed super.

Investing in property through a Self-Managed Super Fund (SMSF) has become increasingly popular in recent years, especially since it became possible for SMSFs to borrow money for property purchases. However, there are strict rules and considerations that must be adhered to when using your SMSF for property investment:

Sole Purpose Test: The property purchased must solely provide retirement benefits to fund members. It cannot be used or rented by any member or their related parties. Commercial Property: Commercial premises can be purchased through an SMSF and leased to a fund member’s business, but it must follow specific rules and be leased at market rates. Costs: Property purchases through SMSFs may involve various fees and charges, which can impact your super balance. Borrowing: Borrowing to purchase property in an SMSF requires a limited recourse borrowing arrangement (LRBA) and strict borrowing conditions must be met. Risks: SMSF property loans can have higher costs, and the fund must maintain sufficient cash flow to meet expenses and loan repayments. Tax Consequences: Rental income from SMSF-owned properties is taxed at 15%, with a one-third discount on capital gains for properties held for over 12 months. Compliance: SMSF trustees are responsible for understanding and complying with the rules, and breaching them may lead to penalties. Purchasing Correctly: The property must be purchased in the name of the trustee of the bare trust, and renovations must be funded by available cash within the fund. Single Acquirable Asset: Different rules apply for properties with multiple titles, and each title may require its own bare trust and LRBA. SMSF Lender: Not all financial institutions lend to SMSFs, and borrowing criteria for SMSF loans are stricter than regular property loans. Investment Mindset: Property purchases must align with the SMSF’s investment strategy and the sole purpose of providing retirement benefits.

Buying property through an SMSF can be beneficial, but it requires careful planning, compliance with rules, and the guidance of qualified financial advisors to ensure it aligns with your long-term financial goals. Before making any decisions, it’s essential to seek professional advice to avoid potential pitfalls and maximize the benefits of this investment strategy.