We all keep hearing about people using Their Superannuation Fund to Borrow and Purchase Property.
You May Be Asking:
- Can we do this? What are the Benefits? AND, are there any Disadvantages?
Well firstly, Self-Managed Superannuation Funds (SMSF’s) are now able to borrow money to help purchase properties.
Borrowing will add to your existing savings in your SMSF providing access to new investment opportunities whilst benefiting from the currently available generous tax concessions.
Borrowing will allow you to invest predominantly in Residential or Commercial Property.
Business owners can now potentially afford to buy their own business premises and become their own landlord.
ADVANTAGES & TAX CONCESSIONS
For instance, your SMSF will pay a maximum of 15% tax on the rent from your property. This will mean more money available after tax to help build your equity/wealth even sooner resulting in less interest cost and greater wealth. In addition, Capital gains made on the sale of the property in the SMSF may also be taxed at a maximum of 15%. Even better, when you retire you draw your Super out of your SMSF as a pension, then any Rent and Capital Gains made by your SMSF from then on are TAX FREE.
DIVERSIFICATION
Borrowing provides more funds available to your SMSF allowing you to spread your investments into the various asset classes (Property, Shares, and Fixed Interest) which can assist in smoothing investment returns.
SUPER CONTRIBUTIONS
The loan repayments can be met partly out of super contributions including SGC, Salary Sacrifice, or personal concessional contributions.
LIMITED RECOURSE
In the event of default, the bank only has access to the asset purchased with the borrowed funds.
Therefore, the other assets of the SMSF are SAFE.
DISADVANTAGES
- STRICT RULES. No personal use can be obtained from the asset – Property cannot be rented by members (unless it is their business premises).
- RISK OF GEARING. Like any borrowing, gearing can magnify the gains but also the losses.
- COSTS. More expensive to set up because of the special structure (TRUST) that is required.
The process and steps involved in successfully implementing the above will be covered in our next article, however if you would like to explore whether the above strategy would be suitable for you please do not hesitate to contact us.
For an appointment, or a confidential discussion of your needs, please contact our Tax Accountants today, or call 1300 627 829.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
