It has recently become popular to buy real estate properties using SMSF, or self-managed super fund, in Australia. It is a type of superannuation fund that provides a way for people to build up funds in preparation for their retirement.
Using SMSF for buying property in Australia is also a great way to diversify your financial portfolio, which can be beneficial if you have a business. Before you take any further steps, however, you should carefully consider these facts about SMSF.
The truth is, you cannot directly use your SMSF to buy any property. You have to apply for an LRBA loan first.
LRBA, or limited recourse borrowing arrangement, allows you to borrow funds for the sole purpose of repairing or acquiring an asset. However, you can’t legally own and hold a property you bought out of this loan because it will be owned and held by a special trust, which is called the Bare Trust.
Buying a Residential Property
As mentioned earlier, superannuation funds such as SMSF are created to help you build funds, so you still have money even if you retire. Because of this, residential properties cannot be bought through SMSF for your personal use.
This means that you or your family cannot live in a house you bought with your SMSF. It can only be used to gain more funds for your SMSF.
Buying a Commercial Property
However, you can rent out a residential property you bought and it will be categorised as a commercial property because you are earning from it. Remember, the property will be held by a special trust, and not you.
The advantage of an LRBA-backed SMSF loan is that you can gain lower tax rates. You’ll get discounted capital gains tax rates if you use SMSF for buying property in Australia under the accumulation phase. It’s tax-free if you’re already a pensioner.
Even though you already know these facts, it is best to consult the experts. There are requirements in the LRBA that are complex and need the attention of a specialist.