SMSF Property Investment: Do’s and Don’ts

September 15, 2021    accountantinperth

Are you pondering investing via your self-managed super fund (SMSF)? If so, you might be fretting over the necessary do's and don'ts of property investment in SMSF. Well, these self-managed super fund trustees are indifferent to various Australians, who tend to relish the opportunity to invest in property directly.

Therefore, such a direct property is a powerful investment that SMSF trustees prefer to consider at some stage. More precisely, as per the SMSF property investment rules, the direct property covers approximately 15% of all the SMSF assets.

However, while the property investment through your super fund might bring in an entire host of numerous advantages, you need to be more vigilant as it's consistently audited and regulated daily.

Do's and Dont's of SMSF Property Investment

The Self-Managed Super Fund rules might appear complicated to you initially when you are not well-acquainted with the laws. Nowadays, every business owners and professionals are busy standing out their business from the crowd.

They usually don't know much about managing SMSF and end up getting contravened the laws while buying properties. Let's check out the Dos and don'ts for SMSF property investment.

The DOs

Build a Super Investment Strategy

Before you start investing in SMSF property, it's important to follow the SMSF property investment rules to succeed. A top-notch written investment strategy must be prepared for the leading purpose of creating retirement amenities for the members of this fund.

Seek Professional Advice

Have you recently established an SMSF or already have an established one? When you are an authoritative body, you are liable for making investment decisions associated with the legislation. As the Australian laws are pretty convoluted, it's essential to look out for professional advice concerning the fund's compliance.

Take the Liability of Superintending your Superannuation Scrupulously

ATO or the Australian Taxation Office takes an indistinct view of anyone lacking an authentic effort to obey the laws. ATO can easily prosecute anyone who disobeys the law, and it can also tax the assets of your super fund at a 45% rate. Moreover, ATO will take adequate action to safeguard your fund's assets if these are at risk.

Consider Gearing within Your SMSF

According to the self-managed super fund property investment rules, your SMSF might borrow to buy an investment property within your superannuation fund. It implies that you don't need to possess enough cash to buy a property instantly in your super fund.

Are you a small business owner? You might be carrying a major and enhancing burden of rent. A top-notch gearing strategy in SMSF is worth concerning, including buying commercial, business, or residential property. Therefore, the rent of your business will quickly help boost the equity in your SMSF.

The Don'ts

Never Provide Financial Assistance to SMSF Members or Their Relatives

Being an SMSF trustee, you are forbidden from providing financial assistance or lending cash to a relative or a member. It doesn't really matter if you charge commercial interest % on that loan. It's prohibited! However, a sound investment decision might seem to you while buying a property at a commercial rate for the super fund. To the core, it will be an infringement of the SIS Act and its guidelines.

Never Purchase a Residential Property from a Related Party

Super funds are embargoed from gaining assets from a corresponding party without the following limited circumstances:

  • The SMSF property investment rules dictate that an asset is a real property of a business. Therefore, the property indicates the buildings and lands, which are exclusively used for conducting business operations.
  • The asset acquisition is obtained from the associated party. It wouldn't result in over 5% of the super fund's assets being invested in those correlated parties.
  • The asset is mainly listed security, such as shares, bonds, or units.

More Precisely, What to consider?

Do you have enough balance between fulfilling endless requirements? You need to decide what type of property and the location you long for buying. Let's consider the pointers below on what to do to abide by the self-managed super fund property investment rules:

  • Thoroughly research the sectors you are willing to invest in. Moreover, search for those properties where you need professional advice based on the future and development.
  • Understand the potential and discrete challenges affiliated with the SMSF loans in case any additional funds are needed.
  • Prepare a precise investment strategy with your advisors, which outline jeopardies, cash flow liquidity, potential returns in terms of the property. Also, you need to ensure its availability to all the fund members.
  • Follow all the superannuation and Australian taxation laws, ensuring you have updated knowledge about ATO and all the SMSF records. Also, you need to look into these if any changes are required.

What to avoid?

Contrariwise, as per the SMSF property rules, things that you clearly avoid include:

  • Purchase a property you plan to dwell in or plan to let friends or families residing in.
  • Buy an expensive property from family, friends, or any fund member associates.
  • Try to invest without a piece of appropriate financial advice. You will quickly get baffled by the information or end up violating the laws.
  • Sell a self-managed super fund property to your known associate at a much lower rate than the market price.

As mentioned earlier, the leading reason to bypass all these don'ts is the infringement of the guidelines established by the ATO, APRA, and ASIC regarding SMSF investing. According to some expert SMSF accountants in Perth, you may have to pay hefty fines when you are caught breaching these norms during an audit.

All the information incorporated in this article are precise and offers important details about the SMSF property investment rules. So, in case you already possess an SMSF and are adversely impacted by the current share market volatility, an investment strategy will be worth considering. You can utilize SMSF to buy various properties as your biggest investment until your family doesn't use it for personal motives. This indicates it's a no-brainer to buy business premises through your SMSF.

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