A property can be purchased and owned by a SMSF either from the property market or related parties. If purchased from the market there are few restrictions however there are limits on the type of property that can be purchased from a related party such as a relative, member or trustee.
The purchase of the property must be made on an arm’s length transaction with trustees ensuring all records of the transaction recorded and documents retained by the fund.
The SMSF needs to be set up or in place prior to purchasing the property or asset at least a day prior. Once the SMSF is committed to purchasing the property or asset it’s too late to set up the SMSF and it’s too late to negative gear it. The SMSF needs to be in place prior to the purchase.
Yes. Traditionally there are two methods of property ownership ~Joint Tenancy and Tenants in Common. As for a SMSF ownership with others are only as Tenants in Common.
+ Incur additional stamp duty
+ Breach the applicable legislation and/or
+ Lose the deposit on the purchase if it is unable to complete the purchase.
Yes, however only a few lenders have these availability in their SMSF product. Eligibility will be restricted to applications where the SMSF members meet Lenders guidelines and for well-maintained properties in acceptable locations approved through NRAS.
+ Yes, you can draw funds from your own super fund off-shore, i.e. United Kingdom, United States, etc., however you need to setup a complying SMSF in Australia first to insure you don’t breach the SMSF legislation.
+ Engage in qualified financial & legal advice in the appropriateness of your SMSF borrowings to purchase an investment property
+ Appoint Neomoney to apply for a SMSF loan structure to insure your SMSF loan is with the right lender for your SMSF investment strategy since a minimal amount of lenders will allow no minimum net asset eligibility requirements for a SMSF.
Commercial, YES. An investor can buy a Commercial asset or a member from the same fund and use the commercial property as their business premises.
Residential, NO. If a member of the SMSF occupies the property the “in-house asset rule” (found in the SIS Act) would be breached.
However, the SMSF can buy a property that the members intend to live in after retirement. This is possible if the SMSF transfers the property to the individual member after retirement.
You can negative gear in a SMSF and still add your concessional and non-convectional incomes which may be taxed at a rate of 15% in the way of your SMSF.
Australian Prudential Regulation Authority (APRA) and Australian Taxation Office (ATO) consulting with the Superannuation industry and the Federal Government passed an amendment to the Superannuation Industry (Supervision) Act 1993 which became effective in September 2007 under Section 67 of the act (Section 67 (4A) to allow a superannuation fund to borrow for the acquisition of an asset.
Self-Managed Superannuation Funds (SMSF) can now borrow money to build real wealth by investing in real estate. SMSF is the most tax efficient way of funding real estate investment in Australia. Superannuation investments are concessionally taxed (15% on income and 10% on capital gains) and can even be tax free for those over 60.
These new rulings affectivity allow the SMSF to invest in assets which may not have been accessible to purchase an investment asset i.e. Real Estate, due to insufficient cash in the fund.
To currently comply, a SMSF trustee must meet certain documentation and net asset test, including the proposed geared investment asset. All SMSF Members must also be in Accumulation Phase and not Pension Phase when the SMSF loan commences. Limited exceptions may be assessed on a case-by-case basis.
SMSFs are a type of superannuation fund effectively enabling its members to participate in the management of their own superannuation investment portfolio, in-line with their fund’s authorised investment strategy.
To be a complying SMSF for the purposes of the Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997, a SMSF must first elect and receive approval to be a regulated superannuation fund and abide by the SIS Act on an ongoing basis. In general, the SIS Act requires the following criteria to be met for a superannuation fund to be a SMSF (with a few exceptions):
+ The fund has a maximum of four members, all of which are individuals
+ No member of the fund is an employee of another member of the fund, unless they are related,
+ Each eligible member is either an individual trustee or in the case of a corporate trustee a director of the trustee company; and
+ No individual or corporate trustee, or director of the trustee company receives any remuneration for their services as trustee or director.
The SMSF Trustee must be permitted to borrow under the SMSF trust Deed
A separate company entity is required to hold title to the property on trust for the SMSF
A trust arrangement deed is required (between the SMSF and the property custodian) specifying the roles and duties for future asset acquisitions by the SMSF
SMSF can choose to purchase the following types of property;
+ Residential Property
+ Commercial and Rural Properties
The Seller or Vendor must be an unrelated party if residential property is being purchased.
SMSF can deal with property in ‘normal’ day-to-day activities (eg lease, repair, and sell).
The SMSF has beneficial right to the property by making one or more payments (title transfer available on full loan repayment).
The SMSF must be able to service the loan from its own income sources. Rents are paid directly to SMSF.
The lender takes a mortgage which is a Limited Recourse to the property asset only and all other SMSF assets are protected.