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SMSF for Investing in Property

Build or expand your property portfolio with your SMSF.

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SMSF for Investing in Property

Using a SMSF can be a very useful and tax effective vehicle in which to purchase property.  There are however a number of special rules that trustees of the superannuation fund need to be aware of to ensure that the fund complies with the regulatory guidelines.

The following is a summary of the various forms of property that can be invested in a SMSF and some tips to ensure that the purchase of the property is suitable and correctly implemented:

Residential Property

A residential property can be purchased within a SMSF and a number of our clients do just that.

It is important to note that any residential property held by a SMSF must meet the Sole Purpose test. Residential properties cannot be purchased from a member of the fund or a related party. In addition to this a residential property owned within an SMSF cannot be rented to or used by a member of the fund or a related party.

Commercial Property

Another common form of property that our clients purchase within their SMSFs is commercial property.

Unlike residential properties, commercial property (or business real property) can be leased from and leased to a related party.

Valuations will be required to ensure that all transactions (both purchase and lease transactions) are on an arm’s length basis (market value).

Borrowing to Purchase Property

An SMSF can also use a limited recourse borrowing arrangement to purchase an asset.  This asset is held in a separate borrowing trust until such time as the debt is extinguished.  As this is a limited recourse borrowing arrangement should the loan default then only those assets held in the borrowing trust are at risk and there is no further recourse to the other assets held in the SMSF.

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