Looking to grow your super by investing in property, but don’t have enough super saved at the moment? If you have a self managed super fund, borrowing money to invest in property might be an option to consider. There are numerous benefits to taking out SMSF property loans – mostly tax incentives, but also the ability to use rental income as additional cash flow to further increase your investment opportunities.
iCare Super can assist you with your SMSF borrowing needs and open up a new world of investment opportunities. Speak to one of our specialists in self managed super fund loans today.
A SMSF can borrow from the following sources to purchase properties or other assets:
The legislation does not prohibit on who can lend to the SMSF, so it is really up to the trustees to decide how to finance the purchase of the property or the other assets in the SMSF.
All self managed super fund loans must comply with the regulations set by ASIC. The SMSF trustees need to ensure the borrowing structure is compliant by taking into consideration SISA and other tax rules:
The ATO’s concern about the self managed super fund borrowing should be noted:
A limited recourse SMSF borrowing arrangement requires an SMSF trustee to take out a loan from a third party lender. The trustee then uses the loaned funds to purchase a single asset (or collection of identical assets that have the same market value) to be held in a separate trust.
Any investment returns earned from the asset go to the SMSF trustee.
If the loan defaults, the lender’s rights are limited to the asset held in the separate trust.
A trustee of an SMSF or its investment manager must ensure that all investments are conducted on an arm’s length basis or, if the parties are not at arm’s length, that the terms of the investment are no more favourable to the other party than they would be if the parties were dealing at arm’s length.
Yes, but proper documentation and an arm’s length rate of interest is required for this type of self managed super fund borrowing.
Yes. The super law (specifically, subparagraph 67A(1)(a)(i) of the SISA) applying to these arrangements explicitly provides that, under a limited recourse borrowing arrangement, the SMSF trustee can apply borrowed money towards expenses incurred in connection with the borrowing.
Yes. The recourse of the lender against the SMSF trustees in the event of a default on the SMSF borrowing must be limited to the asset that is being acquired under the arrangement. A third party may put up their own assets as a guarantee to provide additional security to the lender for SMSF property loans.
Multiple real property titles cannot generally be acquired under a single limited recourse borrowing arrangement. You only can buy one property in one bare trust. However, the bare trustee trustee can be the same for multiple bare trusts. If you set up a corporate trustee for the the bare trust, this company can be used as the trustee for multiple bare trusts for your SMSF.
No. An existing SMSF asset cannot be put into a limited recourse borrowing arrangement. The giving of a charge over an existing asset of the fund (the vacant land), as would generally occur under such arrangements, would contravene the super law.
If you’d like to find out more about self managed super fund borrowing or you want to weigh up your options when it comes to self managed super fund loans, make an appointment with iCare Super today. Call us on (03) 9557 4079 or contact us online.