Self Managed Super Fund Loans

It was once the domain of wealthy baby boomers, but now younger Australians on average incomes have begun using self-managed superannuation funds (SMSFs) to invest in property. Some have realised that their current retirement strategies may not meet their lifestyle preferences when they reach retirement..

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Like other superannuation (super) funds, self-managed super funds (SMSFs) are a way of saving for your retirement. The difference between an SMSF and other types of funds is, generally, that members of an SMSF are the trustees. This means the members of the SMSF run it for their own benefit.

People set up their own SMSF for control, flexibility and personal investment choice. You get to decide on your fund’s investment strategy and choose what your fund invests in and like all super funds the tax rate of an SMSF is 15 percent.

You can only buy property through your SMSF if you comply with the rules.

The property:

Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
Must not be acquired from a related party of a member
Must not be lived in by a fund member or any fund members’ related parties
Must not be rented by a fund member or any fund members’ related parties

Loans for residential property:

Purchase residential investment property – SMSFs can use borrowed monies to assist in purchasing a residential investment property within the super fund. The property must be held in trust for the SMSF until the loan is repaid.

Security of a limited recourse loan – rights of recovery against the SMSF are limited to the secured property. All other assets held in the SMSF are protected.

Potential gearing benefits – it may be possible to claim the interest paid on the loan and expenses as deductions against rental income for tax purposes.

Rental income can be used to demonstrate serviceability – rental income from the investment property can be used to repay the loan.

Integrates easily with existing SMSFs – the loan structure is designed to easily integrate with most SMSFs.

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