For many people, the attraction of creating a Self-Managed Super Fund lies in the ability to use previously unavailable funds to invest in property. While this can be a very effective strategy, it may not always be the best fit for your objectives. Good advice is incredibly important when considering purchasing real estate within an SMSF, but is often difficult to come by.
The most common issues arising from this area are the involvement of borrowings and the sole purpose test.
Borrowings: Within the last few years, it has become common practice to obtain a loan for a superannuation real estate purchase. But as per usual with super, the legislation is exceptionally complex and care must be taken to comply with a raft of requirements. In addition, most banks providing these financing arrangements will require investors to jump through countless hoops. Never has good advice, and accurate “hoop clearing” guidance been more important.
Sole Purpose Test: As with all super fund assets, property is required to meet the sole purpose test. Any investment within the fund must be owned for the sole purpose of providing retirement benefits to the members. This means that the property cannot be rented or inhabited by any related parties (family member, business partner etc.). The one (albeit very important) exception to this rule is the letting of small business premises. A small business owner may purchase the commercial premises from which they operate from within their SMSF. This creates an opportunity for both asset protection, and succession planning.
If you are interested in purchasing real estate in your SMSF, or considering setting up an SMSF, feel free to contact the office and make an appointment with one of our superannuation specialists.