Using Your SMSF to Purchase Property
23 June 10You may have heard about how you can borrow in your SMSF to purchase property. Following is an example of how this legislation can be used to benefit you:
Our client wanted to purchase a new home. We used the opportunity to review their structure and recommended that they could sell their commercial shed to their SMSF and use the proceeds to reduce their new home loan which is not tax deductible. The Fund had a $300,000 deposit towards the purchase of the commercial premises he owned in his own name, which was valued at $775,000.
The client was able to secure lending of 65% against the shed. The loan is principal and interest repayments over 15 years and the rent, in conjunction with some additional income currently received by the SMSF will meet these repayments.
The benefit of doing this was that it enabled the client to only be taxed at 15% for the rent of the commercial shed, as opposed to 30% or more if it was held in their company or individual name. Also, if the client sells the shed once he is retired and in pension phase, there will be no capital gains tax or tax on his pension.
As the client ran his business out of his commercial property he was able to access capital gains concessions whereby he paid no tax.
The other major benefit is that the client was able to legally access funds held under superannuation to pay personal debts whilst ensuring the commercial premises obtains maximum asset protection. Many people are unaware that assets held in a superannuation fund whilst in accumulation phase are exempt from creditors under bankruptcy laws.
Many clients struggle with the notion of putting money away into superannuation however as you can see, superannuation can work for you, especially if super contributions and rent pays your loan repayments.
The lending product being used is Commonwealth Bank's Super Gear lending. Super Gear has a number of benefits such as there is no requirement for a personal guarantee (which is not allowed under the SMSF legislation). Legal title to the property is held separately by a CBA administered custodian throughout the term and the loan can be paid out at any time to obtain legal title to the property.
There is a reasonable establishment fee along with some ongoing maintenance fees. The establishment fee covers the costs of ensuring that the SMSF and the lending process is setup to meet the requirements under the legislation. This must be done before a contract for purchasing commercial property is signed.
If you have any queries in relation to the lending requirements for SMSF please do not hesitate to call 5413 9300 to speak with Jason Fong from Australian Finance Professionals or Wayne Patten from PJT Accountants & Business Advisors.NAME Jason Fong
COMPANY Australian Finance Professionals
PHONE 0427 444 633