Self Managed Superannuation Funds are currently one of the fastest growing retirement savings vehicles in Australia because of the additional flexibility and control it with assets.
Benefits of owning property in a SMSF
One of the key benefits of a SMSF is its ability to purchase real property and hold this asset within the fund. There are significant advantages to owning property in a SMSF, such as the reduction in capital gains tax (CGT) when you sell, the greatest advantages are available on retirement.
For example, you could buy a property at age 55 in your SMSF.
On retirement you could sell this property and be taxed at a rate of 10% CGT after 12 month ownership within the fund and not the 23 - 25% which applies at the top marginal tax rate. An alternative to this is to sell the property to a pension fund and pay 0% CGT. It doesn't’t get any better than that!
Assets owned in a SMSF are fully protected from law suits and bankruptcy.
Loans to buy assets in a SMSF have limited recourse which means that if a default arises the asset it is borrowed for is the only asset that can be accessed.
Who should buy property in a SMSF?
Buying property in a SMSF is not for everyone and it can almost be a decision that is based on how old you are or what stage of life you are at for a number of reasons.
At 20-30 you probably would not buy a property and keep it tied up in a SMSF for the next 40 or so years as your circumstances could change before you get to fully utilise the benefits. It’s also unlikely that at 20 years of age your Super fund could afford to purchase and maintain an investment property.
At 55 it might be a better proposition as you could have a significant amount of money already in your SMSF, enough to purchase and maintain an investment property, and achieve greater asset diversity within your portfolio.
With a SMSF you have more control over the management and investment of your super.
Establishing a SMSF
A SMSF has specific requirements which are administered by the ATO and must be complied with otherwise the penalties could end up costing you a lot more than you stand to make.
Structure
You must purchase your property using a special purpose bare trust. i.e. (Custodial Trustee)
A Trust Deed is required which is a legal document setting out the rules for operating the SMSF. (The Trust Deed must allow you to borrow or it should be updated.)
A SMSF also has trustees appointed to hold the assets and ensure it is operated in accordance with the Trust Deed.
The Trust Deed is accompanied by an investment strategy prepared by an accountant/financial planner setting out how the funds investments are going to be allocated and invested. The investments must meet the sole purpose test.
Lastly you have the SMSF members for whom contributions are made and to whom the benefits will be paid.
Prior to any decision being made to purchase property in a SMSF it is absolutely critical that you seek independent financial planning advice and have a cash flow analysis prepared to establish whether this is suitable for you.
We know qualified, reputable financial advisors and accountants that we would be happy to put you in touch with should you require any of these services.
We know the right experts to talk to you.
The information on this web page is generic in nature and you must seek advice from qualified tax and financial planning specialists before making any decisions about superannuation. One Property can assist you to find the right investment property using this structure to help maximise your retirement nest egg.
