SMSF Property Investment: A Guide to Buying Property with Super

An SMSF loan, also known as a Limited Recourse Borrowing Arrangement (LRBA), allows your self-managed super fund (SMSF) to borrow funds for investing in assets such as residential or commercial properties. These loans enable you to leverage your SMSF’s funds, where rental income is used to repay the loan, and any excess returns are reinvested into the SMSF. SMSF loans are strictly for acquiring investment assets within the fund and must adhere to the regulations set by the Australian Taxation Office (ATO).

SMSF loans, offered by a select number of lenders, typically have higher interest rates compared to traditional home loans. This is because, in the event of a loan default, lenders can only reclaim the specific property purchased with the loan; they cannot access other funds or rental income within the SMSF. Once the loan is fully repaid, the SMSF gains the legal title to the property. Your SMSF can then either continue collecting rental income from the property or sell it, with all sale proceeds returning to the SMSF.

Struggling with the SMSF property purchase contract name? You’re not alone! Understanding who signs for an SMSF property purchase depends on two crucial factors:

• Property Location: State regulations can impact the purchaser name.
• SMSF Borrowing: Financing the property affects the contract signatory.

Avoid Contract Errors! A mistake here can cause delays and headaches. Get the contract details right from the start. This guide empowers you to navigate the SMSF property purchase process with confidence.

The items in italics should be replaced by the actual company/trust/SMSF names and details.

The following summarises when to date a bare trust for an SMSF property purchase:

QLD – Before or on the contract date

NSW – After contract date

ACT – After contract date

VIC – After contract date

TAS – After contract date

SA – After contract date but before settlement

WA – Before or on the contract date

NT – Before contract date

Considering an SMSF loan for your property purchase? Most lenders require a dedicated bare trust trustee company for custodian trusts within SMSFs. This guide explains the benefits and key points:

• Essential for SMSF Loans: Banks often mandate a company trustee for custodian trusts used with SMSF borrowings.
• Separate Asset Protection: Hold property legally distinct from individual members’ assets, minimising personal liability.
• Enhanced Security: A dedicated trustee company offers an additional layer of legal protection for your SMSF investment (learn more: Corporate Trustee SMSFMulti-Trust Efficiency: Utilise the same trustee company for managing multiple SMSF custodian trusts.

Avoid delays and ensure a smooth transaction. Never use the following on the contract for SMSF property purchases with borrowings:

• SMSF Name
• Individual SMSF Trustees
• SMSF Members
• Variations with “or Nominee” (Legality varies by state – consult a professional)

Proactive Planning is Key!

Establish your bare trust trustee company before signing purchase contracts. An incorrect name on the contract with loan involvement requires a completely new contract, potentially jeopardising your negotiation leverage.

Thinking of using your SMSF to invest in property?  While it offers exciting possibilities,  personal liability for accidents can be a major concern. This guide explores how a Corporate Trustee SMSF structure protects your personal assets and minimises risk.

The top 5 benefits of using a Corporate Trustee SMSF:

Enhanced Efficiency and Management:

• Streamlined Administration: A Corporate Trustee SMSF simplifies administration compared to individual trustees.

Unlocking Additional Benefits:

• Single Member Advantage: Corporate Trustee SMSFs allow for single-member funds, ideal for sole operators.
• Lump Sum Freedom: Enjoy the flexibility to access your super as a lump sum, not just a pension.
• Boost Your Retirement Income: Potentially qualify for the attractive 15% pension rebate with a Corporate Trustee SMSF.

Crucial Liability Protection:

Safeguard Your Assets: A Corporate Trustee SMSF shields your personal wealth from potential liabilities associated with the fund’s investments.

A Corporate Trustee SMSF structure offers a powerful shield against such financial devastation.  In the scenario above, with a corporate trustee, only the company’s assets (typically minimal) would be at risk, not your personal wealth.

Limited Liability in Action:

Most special purpose corporate trustees are “$2 companies”.  This means the directors (who are also SMSF members) hold shares with a nominal value of $1 each.  This represents the maximum potential loss for each member.

Peace of Mind for Savvy Investors:

Using a Corporate Trustee SMSF minimises personal risk while maximising investment potential.  While some risk is inherent in property investment, a smart structure can significantly reduce it.

Additional Considerations:

• Insurance: Maintain appropriate insurance coverage, including public liability, for your SMSF properties.
• Investment Selection: Consider the potential for accidents when choosing an SMSF investment property, especially older properties requiring extensive renovations.

Investing in your future shouldn’t come at the cost of your financial security.  A Corporate Trustee SMSF structure provides the peace of mind you deserve.

Speak to a qualified financial advisor to discuss if a Corporate Trustee SMSF aligns with your investment strategy.

Thinking of using your SMSF to invest in property development? This guide explores the rules and alternative strategies for SMSFs with borrowing arrangements.

Limitations of Borrowing for Development:

• Single Asset Rule: SMSF loans can only be used to acquire a single, completed property, not land and construction separately.
• Off-the-Plan Restrictions: Borrowing for developments with future titles (like off-the-plan) can be tricky.

Considering Development Options?

Explore these potential solutions:

1. Commercial Property Development:

• Develop in Another Name: Develop the property outside the SMSF (e.g., family trust) and purchase it upon completion. This may incur additional costs, but some states offer stamp duty concessions for such transfers (except Queensland).
• Not Applicable for Residential Property: This strategy is limited to commercial properties due to restrictions on related party transactions in SMSFs.

2. Residential Property Development with a Unit Trust:

• Superannuation Unrelated Investment Trust (SUIT): Establish a unit trust where your SMSF invests alongside unrelated parties (friends, business partners). Borrowed funds can be combined for development.
• Unrelated Party Involvement is Key: Minimum 50% + 1 unit ownership by unrelated parties is crucial. Understanding “related party” is essential.
• Effective Strategy with Proper Guidance: SUITs can be powerful tools, but require careful planning and professional advice to navigate complexities and compliance.

Considering buying property with your SMSF? While the process is similar to a personal purchase, additional steps are involved. This guide provides a timeline to help you stay organised and minimise delays:

Pre-Purchase Checklist:

• Establish Your SMSF: Obtain an ABN (Australian Business Number) – typically within 28 days (often faster with pre-registration checks).
• Fund Your SMSF: Rollover funds from existing super accounts – expect up to 28 days (usually processed within 7-10 days by APRA funds).
• Secure Financing: Gather two years of financial statements, tax returns (personal & business), and super statements for loan approval (3-4 weeks processing time, excluding COVID-19 delays).

Streamline the Process:

• Early SMSF Setup: Establish your SMSF well before purchasing to avoid delays.
• Pre-Approved Loan: Consider pre-approval for an SMSF loan to expedite the purchase process.
• Holding Trust Setup: Setting up a holding trust for the purchase can be completed within 24 hours in most cases.

Settlement Timeline:

• Contract Signing to Settlement: Allocate at least 6 weeks (ideally 8 weeks) for processing between contract signing and settlement.

This guide clarifies borrowing limits, lender options, and key considerations:

• Loan-to-Value Ratio (LVR) Limits:
  • Residential Properties: Up to 80% LVR (may vary by postcode and lender).
  • Commercial Properties: Typically 65% – 70% LVR (depending on the lender).
• Limited Recourse Loan Availability:
  • Big Four Banks (ANZ, NAB, WBC, CBA) and Macquarie no longer offer SMSF limited recourse loans.
  • Focus on smaller and second-tier lenders for SMSF loan options.
• Loan Minimums & Maximums:
  • Minimum loan amounts typically start at $100,000.
  • Maximum loan amounts can reach $4,000,000 (depending on the lender).
• Rural/Farm Property Considerations:
  • Lower LVRs (around 50%) for rural/farm properties.
  • Additional restrictions based on land size and location.
• Borrowing Smart:
  • Consider a conservative borrowing strategy (e.g., 65% LVR) to maintain positive cash flow.
  • Ensure diversification within your SMSF investment strategy. A single property may not demonstrate sufficient diversification.

Additional Borrowing Option: Member-Financed LRBA

• SMSFs can borrow from members for property purchases under strict guidelines.
• This option involves “limited recourse borrowing arrangements” (LRBA) with specific LVRs, interest rates, and repayment terms.

Considering buying property with your SMSF?  Understanding the costs involved is crucial for informed decision-making.  This guide provides a transparent breakdown of typical expenses:

Essential Establishment Costs (Paid by SMSF):

• New SMSF with Trustee Company: $1,395 (Learn More: How to Set Up an SMSF)
• Custodian Trust Documents (Bare Trust/LRBA): $1,395 (Ensures Legal Compliance)

Additional Considerations:

• Financial Advisor Fee (Optional): $3,000 – $4,000 (Gain Expert Guidance)
• Legal Conveyancing: $1,000 – $2,000 (Varies by Solicitor)
• Lender Legal & Loan Fees: $1,500 – $2,500 (Subject to Lender)

Investing in property with your SMSF?  Understanding ongoing accounting costs is essential.  This guide breaks down annual SMSF fees when you hold property using a Limited Recourse Borrowing Arrangement (LRBA).

Accounting & Audit Fees:

• Typical Annual Cost: $2,275 (including independent audit) 

Additional Regulatory Fees (Paid by SMSF Annually):

• ATO Supervisory Levy: $259 ($518 in the first year) – Paid with the annual tax return.
• ASIC Annual Review Fee – SMSF Trustee Company: $63
• ASIC Annual Review Fee – Bare Trustee Company: $310

Transparency & Up-to-Date Information:

• Fees are current as of July 1, 2023
• ASIC fees are indexed annually – check current rates here: https://asic.gov.au/for-business/payments-fees-and-invoices/asic-fees/fees-for-commonly-lodged-documents/

Looking to buy a property through your Self-Managed Super Fund (SMSF) using a bare trust? Knowing the right time to date your bare trust deed is crucial to avoid any tax implications or delays. This guide will break down the state-by-state variations in dating a bare trust deed for your SMSF property purchase.

• The date for your bare trust deed depends on your state.
• Dating it incorrectly can lead to double stamp duty (NSW, TAS & ACT).
• Here’s a quick reference by state:
  • QLD & NT: Before or on the contract date.
  • NSW, ACT & TAS: After the contract date.
  • VIC & WA: After the contract but before settlement (VIC allows between contract & settlement for nominee purchases).
  • SA: After the contract but before settlement.

Understanding the Nuances:

For states like NSW, ACT & TAS, dating the trust deed after the contract ensures you avoid double stamp duty. In other states, you have more flexibility.

While your superannuation (super) is primarily intended to fund your retirement lifestyle, it can also be a valuable tool for building wealth through strategic property investment. This guide explores the potential of utilising a Self-Managed Super Fund (SMSF) to acquire investment properties rented to unrelated parties.

It’s important to remember that superannuation regulations strictly prohibit using SMSF funds for personal residences. This includes properties intended for yourself or any related parties. Attempts to circumvent these regulations, such as leasing to “unrelated” individuals who ultimately reside in the property themselves, will be flagged by auditors or the Australian Taxation Office (ATO), potentially leading to significant penalties.

However, for those adhering to the guidelines, SMSF property investment offers a compelling opportunity. Potential benefits include:

• Tax Advantages: SMSF property investments may offer favorable tax treatment compared to personally held assets. 
• Portfolio Diversification: Investing in property expands your SMSF portfolio beyond traditional superannuation assets, potentially mitigating risk.
• Long-Term Growth: Property has the potential for capital appreciation alongside rental income, offering a dual benefit for your retirement savings.

This overview provides a starting point for exploring SMSF property investment. It’s crucial to consult with a qualified financial advisor to determine if this strategy aligns with your overall superannuation goals and risk tolerance. They can guide you through the intricacies of SMSFs and ensure your investment approach adheres to all relevant regulations.