An increasing number of investors are choosing to acquire property through their Self-Managed Super Funds (SMSFs). While this can be a sound strategy, it’s crucial to seek professional advice to ensure compliance with Australia’s superannuation laws. Here are key factors to consider before making the move:
- Sole Purpose Test: The primary goal of any SMSF property investment must be to provide retirement benefits. Using the property for personal reasons, like vacations or renting to family members, would breach this rule.
- Arm’s Length Transaction: All property acquisitions through an SMSF must be conducted at true market value. Failing to follow this could result in penalties and breaches of superannuation laws.
- Restrictions on Property Types: SMSFs can acquire residential or commercial properties, but residential properties must be bought from unrelated parties and cannot be used by SMSF members or their families. Commercial properties face fewer restrictions.
- Funding: If your SMSF has enough funds, you can purchase property outright. If borrowing is necessary, it must be done through a limited recourse borrowing arrangement (LRBA) and may involve setting up a bare trust. Given the complexity of these transactions, professional advice is essential.
Investing in property via an SMSF has its benefits but requires careful navigation of regulations. If you’re considering this route, get legal advice to help you make informed decisions.
SEPTEMBER TIP FROM CRIPPS AND CRIPPS PROPERTY