Australians have long had a love affair with property investment as a way to secure their financial futures. And now, with the option to use your superannuation, there are more ways to get into the market and enjoy the benefits of being an investor.
Australians have long had a love affair with property investment as a way to secure their financial futures. History shows that Australian residential property investment in the right areas can provide strong, long-term capital growth and rental income.
Are you considering using your super to buy an investment property? You can if you’re eligible. Read on to find out everything you need to know, including the benefits and answers to FAQs.
If you want to use your super funds for property investment, you need to comply with Australia’s superannuation legislation. There are 5 key requirements:
You can’t buy any property with your super unless you have your own SMSF.SMSFs are becoming increasingly popular with Australians who want to take control of how their retirement funds are invested. According to the latest figures from the Australian Taxation Office, more than 1.1 million Australians now have their own SMSF, and the number is growing. Many are also using their SMSFs to buy property.
Your property investment must pass the sole purpose test for superannuation investments. The sole purpose test requires that any super investments be made to provide funds for your retirement, not current benefits (like your own residential home).An investment property can provide rental income for your SMSF, as well as an asset that is likely to grow in value over time, so it satisfies the sole purpose test.
If you need to borrow some of the funds for your property investment via your SMSF, then you need to have a limited recourse borrowing arrangement. This arrangement protects
your other SMSF assets from any claims made by your lender if you don’t make your investment property loan repayments. They can only make claims on your non-superannuation assets in that situation.
This is consistent with the sole purpose test. You can sell the property at any time, but the proceeds must also go into your SMSF. If you don’t sell the property until you retire, you will pay no Capital Gains Tax (CGT).
If you do sell the property before you retire, you will pay a discounted CGT rate of 10% on any profit, provided you hold the property for at least a year.
However:
If you want to keep the property to live in after you retire, you can transfer it from your SMSF into your name, tax-free at its current market value.
If you don’t already have an SMSF, you can set one up contacting an accountant or legal professional who specialises in SMSFs. However, it’s important to understand that there are set-up and ongoing costs, and you need to have a super balance of at least $200,000 to make setting up your own SMSF financially worthwhile.
At DPN, we can help you with buying an investment property via your SMSF. We have accessto a range of SMSF finance solutions as well as qualifying high-quality investment properties across the east coast of Australia.
Buying an investment property via your SMSF can provide you with the following benefits:
It’s important to buy a high-quality property in a good area to maximise the return on your investment.
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