There are several steps that need to be undertaken to enable a fund to undertake this. We can help you work through the setup and establishment of your SMSF. This will include appointment of Trustee and registering your Fund as a complying SMSF and thereby allowing the Fund to obtain concessional tax rate at 15%.
We are often asked – “how does a SMSF acquire a property “
There are some basic rules and do and don’ts. As Licensed Accountants to deal with this issue, Geoff Gartly who is an authorised representative of Merit Wealth can help you work through the issues so that a smooth transaction can take place.
Here are a few pointers
1. Make sure the Trustees have a corporate Trustee arrangement
2. Make sure you have a Fund Deed that is up to date from a reputable law firm.
3. Ensure you have sufficient cash for deposit, legal, stamps and working capital for the fund.
4. Make sure your SMSF has been contributing regularly
5. Make sure you are don’t have any retirement issues that may upset the strategy and require the property to be sold in short term.
4 When borrowing the Funds must be acquired for to buy an accepted asset. In practical sense the Banks will only put a borrowing facility in place if it is done correctly and for a legitimate property transaction.
5 The Property is held on Trust using a bare Trust and the Fund acquires a beneficial interest in it
6 Your SMSF has a right to acquire legal ownership of the asset by making payments after acquiring the beneficial interest and paying out the loan. There may be some stamp duty issues here
7 There is limited recourse (the rights of the lender against the SMSF for default on the sum of the borrowing and related charges are limited to the asset). In this case, the Fund cannot ask the members to repay the balance of the loan if there is a default.
Things a SMSF Trustee should know about borrowing within their SMSF Fund for a Property Purchase under Borrowings:
· The rules do not allow for construction improvements or refurbishment on the property while borrowings exist. Cosmetic repairs are ok – talk to us about this
· Member(s) of the SMSF cannot live in the residential property either renting it from the fund as your home or holiday home. The Trustee can plan to purchase a residential property upon retirement by transferring the property that they intend to move into after retirement. Careful planning needs to be done here but in most cases once you retire and the property can then be transferred out of the Self-Managed Super Fund
· No vacant land can be purchased under a borrowings arrangement. The only vacant land that is income-producing such as rural land, such as a working farm is allowable (most banks won’t lend for SMSF country properties)
There is no redraw facility is available on the SMSF loan
· All property purchases must be on a ‘stand-alone’ basis using a Bare Trust and each property must have its own bare trust arrangement (e.g. can’t use the same Trust for several Properties
· An existing asset can be refinanced. It must however meet the rules of the SIS Act and satisfy the bank borrowing arrangements.
Call us for assistance with your SMSF and what you can and cant be done.
Phone 9597 9966.
Geoff Gartly is a Geoff Gartly is Limited Authorised Representative 1248227 of Merit Wealth Pty Ltd, Australian Financial Services Licence 409361, ABN 89 125 557 002