Borrowing with your Self-Managed Super Fund (SMSF) is a great way to invest in residential or commercial property if you don’t have the funds in your SMSF to buy an investment property outright, via a ‘Limited Recourse Borrowing Arrangement’ (LRBA) so that each asset is housed inside what is known as a ‘Bare Trust’.
There are advantages to having a property in an SMSF with the most obvious being the tax rate for income derived in your super fund being taxed at a considerably lower rate than income tax (namely 15%) and your capital gains tax discounted, as well as the choice to control your investments and your future investment strategy.
If the asset is sold while the super fund is in its pension phase, you don’t have to pay any tax on the sale.
However, it’s important to get expert advice as there are many factors to bear in mind if you plan on setting up an SMSF specifically to buy property. For example, you shouldn’t buy a residential property through your SMSF if you or a family member intends to live in it, and the property cannot be bought from a related party. The transaction must pass the SIS Act 1993 ‘sole purpose test’ meaning it is maintained for the purpose of retirement benefits for its members.
