Trustees of self-managed super funds are becoming increasingly drawn to investing in property through their fund. Acquiring an investment property through a self-managed super fund has several benefits. However, it's a complex process. There are many things to consider alongside your investment strategy and risk mitigation.
Our team of property experts at Bolt & Hunter are here to help you navigate the rules and regulations of buying property through your SMSF. In this article, we discuss why investing in property through your self-managed super fund may be a good strategy.
There are many things to consider when buying an investment property through your self-managed super fund. Not all properties can be purchased through your SMSF. So, one of the first considerations should be, what boxes the property needs to tick to comply.
In a nutshell, an investment property bought through your self-managed super fund must:
The above eligibility criteria refer to residential properties only. In the case of a business premise, SMSF trustees can buy a premise intended for their business use through their fund. This is on the accord that rent is payable (at market rate) straight into their SMSF. For this reason, buying a property using this method is a popular choice for small business owners.
When purchasing a property through your self-managed super fund, lending is possible. It's referred to as a limited recourse borrowing arrangement (LRBA) and is done under strict conditions. There is a range of requirements, which may vary from one bank to another. Either way, it pays to invest in the support and guidance of a financial adviser you can trust.
Self-managed super funds are an attractive means for creating long-term financial success. There are several advantages to investing in property through your SMSF as opposed to owning it in your name. Below are some of the advantages worth noting:
When you own an investment property in your name, the rate at which you pay rental income tax is aligned with your personal income tax rate. This can mean that, in cases, your rental income could be taxed at a rate of up to 46.5%. Investing in property through your business doesn't offer much tax relief either, with the tax rate sitting at 30%.
Investing in property through your self-managed super fund, however, means that your rental income will get taxed at no more than 15%. This is due to the concessions that apply to earnings generated by superannuation investments. Furthermore, some expenses associated with owning the property may be tax-deductible.
Capital gains made as a result of an increase in property value are also taxed at the superannuation rate. The rate of capital gains tax your fund will be subject to varies depending on the phase of your SMSF at the time of sale.
Accumulation Phase - up to 10% depending on varying factors.
Pension Phase - complete capital gains tax exemption.
If you run your business from the property your SMSF owns, your rent is payable to your fund at the commercial rate. This can help speed up the accumulation of savings within your SMSF. This rent is also tax-deductible.
The rent payable to your SMSF is not treated as a superannuation contribution. So, being able to make payments into your fund whilst not contributing to this limit, offers you tax efficiency and the ability to build your retirement funds faster.
Your decision on whether you should invest in property through your self-managed super fund should be based on facts and expert advice (from a qualified planner/advisor) you can rely on. As mentioned, purchasing an investment property through your SMSF may present benefits, but it is a complex process. What's more, the benefits are subject to making a sound investment decision.
Our team of property experts at Bolt & Hunter can help you answer the following questions:
We offer a quality end-to-end service. Our team can help guide you towards the property that best matches your investment strategy and risk profile. Please don't hesitate to get in touch to see how we can be of assistance.