Should You Use Your SMSF To Buy Property?
Today, with Self-managed Super fund becoming the backbone of the $1.8 trillion Australian Super industry, there is no dearth of people borrowing against their SMSF to buy properties. So is it a good sign you may ask? There is not much harm in doing so unless you are going overboard….
Buying property from related party
….because if you do, there can be serious financial pitfalls. Some of them can in the form of penalties. For instance, if you choose to buy a residential property from a related party (another member of the fund), the ATO is well within its rights to impose a penalty on you. Put another way, you can only buy a business premise through your SMSF, following the arm’s length rule.
Limited recourse loan
When you use your SMSF to buy property, remember you only have the limited recourse loan option at your disposal. This means that your entire asset base is not at risk if the fund defaults for some reason.
If your prospective property is an asset that goes against your investment strategy you should be wary of the move because such a move can be laced with the smell of penalties. Ideally, you should make amendments to the investment strategy before buying the property.
Sole Purpose test
In a world envisioned by the founders of SMSF, Sole Purpose Test stands tall and like a guiding principle. At all times, keep in mind that the Super is a vehicle to boost your retirement kitty, above everything.
Great many benefits…..just that diligence is required
Undoubtedly, buying a property within your SMSF can have potential tax benefits. Besides, it can help you diversify your funds better and get yourself a healthier portfolio. The need, if any, is to be diligent that you do not go against the norm.