Buying Property in Super
One of the advantages of Self Managed Super Funds (SMSF's) over other types of superannuation is that you can buy property with your super. You can even borrow money in your super (called a Limited Recourse Borrowing Arrangement) so you can afford a property worth more than your super assets.
There are some significant benefits of buying property in super:
Investment returns – you may believe that property will deliver better returns than shares, cash and other asset classes
Tax – There are 2 potential tax benefits. Firstly, the contributions you make to super, which can then repay the loan, are taxed at 15% rather than your marginal tax rate. Secondly, if you sell the property once you have started a superannuation pension (eg after age 60), there will be no capital gains tax payable. The tax savings could be over $200,000 compared to buying the property in your personal name, depending on your personal circumstances and the rate of growth of your property.
Deposit – you can use your existing super balance to fund the deposit on the property, rather than having to save money outside super.
If you run a business, your SMSF can acquire property owned by the business, freeing up cash flow to grow the business
Leverage - you can borrow up to 80% of the value of the property. After allowing for transaction costs, you can buy a property worth up to 4 times the value of your fund assets. So even a small percentage increase in the value of the property has a large impact on your return.
We would generally recommend that you have at least $150,000-200,000 in super between you and your spouse for buying property in super to be viable.
We would also recommend that you partner with a service provider that specialises in SMSF's. Setting up the structures correctly is important, and most accountants are not aware of the details - despite what they will claim. Unwinding any errors can be costly and time consuming. At Lime Super, we have extensive experience because this is our specialty. Unfortunately we have too many clients where we had to fix issues that had been created by their previous accountants. Don't make this mistake yourself - let us help you get it right the first time and ensure you don't have to pay any penalties.
Nearly half the enquiries we receive to set up new funds are in relation to buying property - so it is clearly a popular strategy. Contact Lime Super today to discuss buying a property in super. Or consider attending one of our seminars to learn more.
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