Purchasing property with your superannuation can be a great option if you are looking to:

1. Have more control over how your superannuation is invested

2. Minimise the tax payable on an investment property

3. Don’t have the disposable income or borrowing capacity to purchase an investment property.

4. Turbo charge your SMSF by borrowing money to fund the purchase of property assets which will increase the value of your super at retirement

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Australians can purchase an investment property using their superannuation by setting up a self-managed super fund (SMSF). The property is then purchased under the SMSF and all fees, loan repayments and any other costs associated with the property are paid through the SMSF from your superannuation contributions. Any income generated from the rental of the property is paid back into the super fund.

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What is an SMSF?

A self managed super fund(SMSF), is a private superannuation fund that is managed by the individuals instead of an industry superannuation fund. Your regular superannuation payments are credited directly into the fund and you manage how your superannuation is invested.

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SMSF’s are highly regulated with strict ATO rules and require all investment strategies to be clearly outlined. A property being purchased by an SMSF must be for the sole purpose of creating wealth for retirement. It is advisable that you seek professional assistance from an accountant or financial planner when considering setting up and managing a SMSF.

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Advantages of purchasing property with your superannuation

· All costs & expenses are paid by the super fund so you are not required to save for a deposit or use funds from your everyday finances.

· Capital gains tax won’t be paid if your SMSF purchases an investment property and sells it when fund members are in ‘pension phase’. This could potentially save hundreds of thousands of dollars in tax.

· If the property is owned for more than 12 months, but sold before fund members are in pension phase, capital gains tax is capped at 10% which is much lower than a regular investment property.

· The maximum tax payable on an SMSF property rental income is 15% which is much lower than an average Australian’s tax income rate.

· All expenses for the property including rates, maintenance, insurance etc can be claimed as tax deductions by the SMSF.

· Negative gearing can be used to reduce the tax paid as loan interest repayments can be offset against other taxable income earned by the SMSF.

· SMSF loans are non-recourse loans, meaning that if you default on your loan, the bank cannot come after any other assets owned by your super fund.

· A commercial property that is going to be used for business purposes can be purchased from a person who is related to the SMSF members and any business that is owned by the SMSF members can occupy the property as a commercial tenant.

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Disadvantage of purchasing property with your superannuation

· SMSF loans are more restrictive than a normal home loans.

· Interest rates for SMSF loans are usually higher than standard home loan rates.

· Property choice is limited to established properties only.

· The trustees of the SMSF are not permitted to live in the property until after retirement.

· A residential property cannot be purchased from a person who is related in any way to the fund members.

· A residential property cannot be leased to a person who is related in any way to the fund members.

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Our experienced SMSF Mortgage Brokers can provide all the information you require to decide if purchasing property with your superannuation is a good strategy for your investment property purchase, give us a call today.

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