Australians are rather passionate about investing in real estate, so it makes sense that many self-managed superannuation fund (SMSF) trustees are keen to add property to their DIY super portfolios.
It is possible to use your SMSF to buy property and you can do this by either buying the property outright, transferring an existing property into the fund, or by borrowing (or ‘gearing’) inside the fund to buy all or part of the property.
There are some very strict regulations that govern how you can treat property inside super, particularly when it comes to gearing.
So why put property into super?
As with other asset classes held in super, capital gains and investment income receive preferable tax treatment inside super. It is particularly useful for business owners who can have their SMSF own their business real property. In some States, stamp duty concessions may also be available.
But there are some strict rules regarding property investments inside super. For instance, all rental agreements must be made on commercial, arm’s length terms, which means if you’re renting your business property from the fund, you must make sure you’re paying the going market rate. There are also restrictions on residential properties. For instance, you or any related party of the fund can’t live in a property owned by your super fund, and that goes for holiday homes as well.
And if you’ve borrowed money inside super to purchase a property, there are restrictions on what you can do to the property. For example, you can replace old carpet, but you can’t rip down a two bedroom house and build a new four bedroom one.
For more details, please read:
- Four reasons to put commercial property into super
- Moving property into super: things to think about
- Making money out of property in an SMSF
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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.