It can be an incredibly rewarding strategy to invest in property through your SMSF – but quite confusing if you are new to it.
Mark Ribarsky from Wise Real Estate Advice answers the top 7 questions they get asked about SMSFs and property.
1. Can I use negative gearing through my SMSF?
Yes. As with an individual investor, a SMSF
can claim borrowing expenses and interest on an investment property
. You are able to use negative gearing to offset any tax on the SMSF
s income, as well as profit from any capital gains on the property in the future. However, when you purchase a property using your SMSF
, you aren’t able to claim deductions for yourself, only for the fund.
2. Is it tax effective to invest in property through SMSF?
Rental income earned on your SMSF investment property
is typically taxed at 15%. If you open a pension in the fund are your preservation age, rental income is tax free. Furthermore, by opening a pension in the fund after your preservation age, any capital gains are tax free on the sale of the property. We always advise people to speak to a tax advisor before investing in this way as tax laws are very complex. So, depending on your situation, investing in property through SMSF
can be extremely beneficial.
3. Will the bank lend me any money?
Due to the non-recourse nature of SMSF
loans, banks tend to borrow a little bit less to a SMSF
, than they might for an individual buyer. In the event the SMSF
evades the loan, the bank is unable to repossess or sell other SMSF
assets to recoup any shortfall on the loan. Rather, they can only repossess or sell that property itself. All banks have different caps, but you are likely to find that the average might let you borrow up to 80% of the properties value if your SMSF
is in a companies trustee , or 72% if its an individual trustee.
4. Can I buy my business premises through my SMSF?
Yes. You can buy your business premises through your SMSF
and by renting it back to your business at market price, you can use your businesses rent prices to build your super.
5. Can I buy a holiday house through my SMSF
No. All SMSF
investments must be purchased with the purpose of saving for retirement. You cannot buy a property for personal use.
6. Can I buy an investment property from me or my partner through my SMSF?
No. Your fund isn’t allowed to purchase residential property from anyone associated to the fund – be it the member or a relative. You cannot transfer property you or your relative already own into your SMSF
7. Can I lease my SMSF residential property to a relative?
No. The current super laws forbid renting a SMSF
owned residential property to anyone associated to the fund – be it the member or a relative of the member.
8. Can any property manager look after a SMSF?
Yes. It’s essential the property management company
have great tax reporting.