SMSF – Self Managed Superannuation Funds

SMSF Property Loans : Self Managed Super Fund Lending (SMSF Loans) : SMSF Setup 

 

Q: What is a SMSF – Self Managed Superannuation Fund (SMSF)?

A SMSF is a superannuation fund established for 1-4 people for the purpose of providing benefits in retirement or upon earlier death or disability and its fund is controlled by Trustees/Directors, who are also the members.

A SMSF fund is controlled by the members who are also the trustees.

 

Q: Who Is Eligible for a SMSF Property Loan?

  • A key reason people elect to manage their own superannuation is the flexibility to choose where their money is invested. Superannuation laws allow SMSFs to borrow money to help purchase residential investment property, giving direct exposure to real property assets.
  • Australian residents with an existing SMSF or currently in the process of establishing a SMSF.
  • SMSF’s that have an existing residential property loan and wish to refinance from another lender.
  • If you currently have a SMSF facility in place, it can now borrow funds to purchase a residential, retail commercial, rural or specialised property via a SMFS Loan facility.
  • This is because of the Legislation changes that have occurred in September 2007, when The Superannuation Industry Supervision Act (SIS ACT) was amended to allow Superannuation Funds (SMSF), to borrow money provided an agreed structure was utilised....
  • Basically it must follow a structure as follows: - A Security Trustee will purchase the property on behalf of the SMSF and become the legal owner of the property holding it in trust for the SMSF (as beneficial owner). The SMSF will provide an equity contribution from the Superannuation Funds assets and borrow the balance of the money with an SMSF loan.

In summary:

  • The Lender basically gives a loan facility to the SMSF (Self Managed Super Fund), to assist in the purchase or acquisition of eligible income producing real property
  • The asset is held in trust or which the SMSF hold a beneficial interest in same.
  • The money that is borrowed (SMSF Loan) is applied to the purchase of an asset.
  • The SMSF loan is a “limited recourse”, meaning the lender cannot touch any other SMSF assets other than the property held as security, which basically means that the rights against the SMSF in the event of default are limited to the security property.
  • A key reason people elect to manage their own superannuation is the flexibility to choose where their money is invested. Superannuation laws allow SMSFs to borrow money to help purchase residential investment property, giving direct exposure to real property assets.
  • Funds to complete: - the SMSF Setup must have sufficient monies or equity, to cover the required deposit, acquisition and settlement costs.
 

Some of the key benefits and features of a SMSF Setup and a SMSF Loan facility:

  • A key reason people elect to manage their own superannuation is the flexibility to choose where their money is invested. Superannuation laws allow SMSFs to borrow money to help purchase residential investment property, giving direct exposure to real property assets.
  • Can invest in a wide range of investments including property, shares, cash or any other asset that suits the investment objectives of the fund (provided it meets the sole purpose test).
  • Investment gearing opportunities including property loans,
  • The SMSF Setup is structured to meet the specific investments needs and strategies of its members,
  • Members have control, choice and flexibility over how the fund is operated and how funds are invested,
  • Purchase residential investment property – SMSFs can use borrowed monies to assist in purchasing a residential investment property within the super fund (SMSF)
  • Security of a limited recourse loan – if the loan goes into default the lender’s rights of recovery against the SMSF Trustee are limited to the secured property and the additional security provided by the guarantors. ALL other assets held in the SMSF are protected. All other SMSF assets are safe and cannot be touched by any lender due to the limited recourse provisions in section 67 (4A) of the SIS (Superannuation Industry Supervision Act);
  • Potential gearing benefits – it may be possible to claim the interest paid on the loan and expenses as deductions against rental income for tax purposes by the SMSF super fund;
  • Rental income can be used to demonstrate serviceability - - rental income for the investment property can be used to demonstrate serviceability and can be used to repay the loan. Income from other SMSF investments and super contributions can also be used to service the SMSF loan
  • A maximum 10% capital gains tax on sale of property if held for at least 1 year,
  • Maximum of 15% tax on rental income;
  • Greater investment choices and control over your future;
  • Potential there may be no capital gains on sale of property if sold in pension phase;
  • The SMSF can pay out or reduce the SMSF loan at any time (subject to the terms of the relevant loan)
  • Through gearing, the SMSF Setup can acquire property for a greater value than that of the funds ‘net worth’.
 

Q: What type of property can be purchased with the SMSF loan?

  • SMSF Property Loan can be used to help purchase a residential investment property or refinance an existing SMSF Setup for residential investment property loan.
  • There or Loan purpose restrictions: - Funds cannot be used to purchase commercial real estate, vacant land or owner-occupied residential property, construction, equity release, home improvements, off the plan, bridging, principal increases, substitution of security and multiple titles.
 

SMSF borrowing structure

Below is a typical “SMSF borrowing structure for most lender’s, - for this an example and illustration purposes – l have outlined a typical SMSF borrowing structure for Macquarie

 

SMSF Setup – Self Managed Superannuation Funds

 

SMSF - LENDER’S “credit policy” – Documentation requirements are:

  • Certified copy of the SMSF Trust Deed
  • Certified copy of the Holding Trust Deed
  • SMSF Trust tax returns (where available)
  • Income evidence for all SMSF members
  • Super contributions evidence for members
  • Proof of interest / dividend earning assets (share certificates, holding statements or financial statements)
  • Proof of SMSF expenses (letter from Accountant or previous year’s tax return or invoices and receipts)
  • Rental income evidence
  • Copy of contract of sale
  • Servicing calculators (SMSF and standard)
 

If we can assist you in SMSF Setup Loan facility, or any other Financial, Insurance or Property Advise.
Please feel free to contact us – as we look forward in assist you.

Please note: that this information and any information used on this website, is for illustration and product information purposes only, FLR Business Solutions Pty Ltd and FLR Solutions, strongly suggest that all individuals, members, trustees, directors, SMSF trustees, or anyone who is considering any loan facilities – to make sure that they seek independent financial, taxation advice and legal advice, before making any financial and financial investment decisions. FLR Business Solutions Pty Ltd, FLR solutions and its directors, employees, and lending institutions will not be liable so you make the wrong decision and not seek independent advice prior to making any financial decisions.


 

 

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