Buying property through SMSF is very popular among property investors.
After rolling over money from existing super fund property can be purchased.
A borrowing up to 80% of the value of the property can also be used to purchase property
The most exciting part is once you reach 60, the SMSF can be switched into pension mode and property rental income and capital gains are tax free.
Buying a residential property under SMSF
A minimum super balance of $150,000 – $200,000 is recommended Trustee/members’ of the super fund or anyone related to them can’t live in the property. An existing residential property owned by trustee/members cannot be sold/transferred to the super fund.
Buying a commercial property under SMSF
The rules for buying a commercial property under the super are different to buying residential property.
Buying a commercial property from trustee/members is allowed. The bought property can be leased back to business owned by trustee/members. This is a very popular strategy but any related party buy and let out must be done at market rates.
Tax consequence of buying property in SMSF
The property rental income is taxed @15% after deducting property deductions.
For property purchased through loan, bank interest is fully deductible and any loss after deductions can be carried forward to future years.
If the property is held for more than 12 month, capital gain tax is only 10% and any income from property in retirement is completely tax free.
Borrowing to buy property in your SMSF
Trustee/members can buy property by borrowing up to 80% of the property value, this can be achieved by Limited recourse borrowing arrangements, called LRBA.
Under this arrangement, a separate bare/property trust is created under the SMSF to hold the property so that the lender only has recourse to this property. In case of default, they cannot touch other smsf assets or trustee’s personal assets.