Investing in property through Super is popular among Australians looking to boost their retirement savings. To do this, you need to set up a Self-Managed Super Fund (SMSF), giving you control over your super investments.
However, it is important to understand that managing an SMSF comes strict regulatory obligations.
Here are the 5 most common questions we get asked
1. What is the minimum super balance required?
Although there isn’t a defined limit, it’s commonly recommended to have around $200,000 (individual or combined) in your super fund. This ensures the feasibility of the investment covering initial costs and ongoing expenses.
2. Can SMSFs borrow money to purchase property?
Yes, SMSFs can borrow money to buy property through a Limited Recourse Borrowing Arrangement (LRBA). However, it’s important to have sufficient deposit, typically 25%-35% of the property's value, to secure a loan and complete the purchase.
3. Can you or your family members live in the property purchased through SMSF?
No, you or the family members cannot live in the property purchased through SMSF. The property must be solely for investment purposes and cannot be used for personal use, including residency. This requirement is in line with the ‘sole purpose test’, which ensures that investment within SMSF is made solely for the purpose of retirement benefits for members.
4. What are the tax benefits of investing in property with SMSF?
Rental income earned from your investment property in an SMSF is only taxed at 15%. If the property is sold after holding on for 12 months, a capital gains tax discount of one-third is applied. You can also offset any expenses incurred to hold the property including deprecation.
5. What types of residential properties are eligible for investment within an SMSF?
An SMSF can invest in houses, townhouses, or apartments, typically through a single contract. However, purchases such as house and land packages, which require separate contracts, are not eligible.
CONCLUSION
According to the Australian Taxation Office (ATO), total SMSF investment in property has grown to $166.9 billion in 2020–21, up from $137.0 billion in 2016–17.
However, setting up and managing an SMSF is a highly regulated process. Therefore, the key is to consult with a financial advisor or SMSF specialist to ensure you thoroughly understand your responsibilities and your fund remains compliant.
At SONI Wealth, we have a step-by-step system to guide you towards the right property investment opportunities through SMSF. With our experience and knowledge, we can help you achieve your financial goals, whether you are looking to purchase property inside or outside of your SMSF.