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Have you ever looked at the wealth sitting in your super fund and wondered if there was a better way to leverage it? A self-managed super fund (SMSF) is a smart way to grow your wealth through property and reduce the amount of income tax you pay.
Many Australians choose a SMSF because they want greater control over how their superannuation is invested. Some banks and mortgage providers have loans specifically tailored to SMSF, and the right SMSF loan could add to your retirement nest egg.
What is a SMSF Property Investment?
Think of your SMSF as its own entity. The SMSF chooses the property it wishes to invest in, applies for the loan and acts as a guarantor.
The SMSF manages the asset the same as any other real estate investment. As the loan owner, the SMSF is responsible for repaying the loan and paying all fees associated with owning property, including council rates, water rates and property management costs. If there are multiple trustees within your SMSF, each trustee is liable for the loan.
Find out how you can leverage your borrowing power with our borrowing power calculator.
SMSF Commercial Property Loan
Increase your borrowing power by leveraging your self managed super fund. If you can’t purchase an investment property or commercial property outright, a SMSF is a good option. What’s more, if you hold the asset in your SMSF until you retire, your fund could potentially enjoy the benefits of zero capital gains tax on that asset.
It’s important to note that properties purchased through the SMSF cannot be lived in or rented by you or anyone related to you. If you’re hoping to purchase that holiday house you’ve always dreamed of with a SMSF loan, you may need to re-evaluate your property goals as super fund lending is highly regulated with strict rules and tighter lending criteria.
An underlying condition of SMSF finance is that any purchase made with a SMSF loan must provide retirement benefits to the SMSF members.
SMSF Property Tax
While there are many benefits of purchasing property through a SMSF loan, there are also some tax considerations. Property bought through a SMSF must pay 15% tax on any rental income received from the property. However, properties held for longer than 12 months receive a one-third discount on any capital gains it makes upon the sale. Furthermore, if your investment property is purchased through a SMSF loan, then the interest payments are tax-deductible to the fund.
Once all trustees associated with the SMSF go into retirement and start receiving a pension, any rental income or capital gains accrued by the fund will be tax-free.
How can you apply for a SMSF loan?
A SMSF is security for your retirement, and adding debt by borrowing money against your SMSF is not a decision that should not be made lightly. We recommend you seek financial and legal advice before applying for a SMSF to weigh up both advantages and disadvantages.
There are several key criteria a SMSF must meet to be eligible for a super fund loan.
There must be sufficient income in the SMSF trust to support the loan.
The SMSF must be able to service the loan through rental income, super contributions, and any other superannuation fund income. Typically, banks and lenders will look at the current income for the SMSF based on the previous tax returns of the last two years to assess if that income and the proposed rental income will be able to service the loan.
Before approving the loan, lenders will seek confirmation from the SMSF trustee to ensure the loan arrangement is in line with the overall SMSF investment strategy.
Establish a trust structure that is required for a SMSF loan compliant with current superannuation laws
SMSF Loans on the Gold Coast
Why use a mortgage broker for SMSF finance? Well, a specialist loan requires experianced hands. Crest Lending SMSF loan brokers can help optimise your loan and SMSF structure to get better results from your super fund. We find SMSF loan rates that the major banks don’t offer as it’s mainly small lenders competing in this market. For standard home loans, there is only a small difference in interest rates however, for SMSF loans, there is a much larger difference and it requires a skilled SMSF loan broker to find the loan rates suited for you.
Contact us today to learn how we can help you set up your SMSF home loan to reach your fund’s investment goals.