SMSF
PROPERTY INVESTMENT

SELF-MANAGED SUPER FUND

A self-managed super fund (SMSF) can provide more control over your superannuation and retirement, with investors having the ability to choose the investments, including properties, that can earn higher returns than industry super funds.

Why Have a SMSF?

There is one main advantage: control.

Members can tailor their investment strategies to suit their personal preferences and financial goals, choosing from a wider range of investment options than those typically available in public super funds. This includes direct investment in property, shares, and other assets.

At GPFG we have qualified financial advisors who can walk you through SMSF property purchases, as well as property specialists to choose the right property for your budget and goals, and tax advisors to help you maximise your returns.

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SMSF Investing in Property - How Does it Work?

An increasingly popular choice for Australians is using funds in a SMSF (Self-Managed Super Fund) to invest in property assets as a means to grow their wealth for retirement.

The investment must comply with the 'sole purpose test' of superannuation - to provide retirement benefits to members.

The Sole Purpose Test:

A fundamental aspect of SMSF property investment is adhering to the 'sole purpose test. This test, a cornerstone of superannuation law in Australia, mandates that all activities and investments of the SMSF must be carried out with the primary intention of providing retirement benefits to its members.

Retirement-Oriented: Every investment, including property, must be chosen and managed in a way that benefits members in their retirement. The property investment shouldn't serve immediate financial needs or personal purposes of the members before retirement.
Personal Use is Prohibited: Specifically for residential properties, the fund members and their relatives cannot use the property for personal purposes. This is to ensure that the investment remains purely for the purpose of retirement benefits, not for present-day enjoyment or benefit.
Renting Out Property: Rental income generated from the property goes back into the SMSF, contributing to the fund's growth.

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What are the benefits of fractional property investment?

Fractional property investment offers several benefits that traditional property investment cannot match.

Control and Flexibility

Allowing you to select properties, negotiate terms, and manage your investments directly, aligning with your specific goals and strategies.

Potential for Higher Returns

The potential to earn more for retirement than a typical superfund is the biggest advantage of having a SMSF and property investment assets.

Property Market Dynamics

Real estate has historically been a strong performer over the long term, often outpacing inflation and providing steady capital growth. By including property in an SMSF, trustees can leverage these market dynamics to enhance retirement funding.

Reduced Rental Income Tax

Income from property rentals is taxed at the concessional super fund rate, which is lower than personal income tax rates for most individuals. This can lead to substantial savings, particularly for high-income earners.

Maximised Tax Deductions

SMSFs can claim deductions for expenses related to property investment, including interest on loans, maintenance, property management fees, and insurance. These deductions can help to lower the overall tax liability of the fund and maximise returns.

Lower Capital Gains Tax (CGT)

FWhen a property held by an SMSF is sold, particularly after a long holding period, the capital gains tax is generally lower compared to personal or company rates. If the property is sold in the pension phase, the CGT might be reduced further, potentially to zero.

Asset Protection

Property held within an SMSF enjoys a degree of asset protection. In the event of bankruptcy or litigation, assets within an SMSF are generally protected from creditors, safeguarding a member's retirement savings.

Estate Planning Benefits

SMSF property investment can also play a strategic role in estate planning. The ownership structure within an SMSF can provide more options for passing wealth to beneficiaries in a tax-effective manner.

FAQs for SMSF Investment Property

Can you live in your own SMSF property?

No, you cannot live in a property owned by your SMSF. The rules strictly prohibit the use of SMSF properties for personal purposes, including residing in them. This is to ensure adherence to the sole purpose test of providing retirement benefits. Our advisors at GPFG can provide further insights on how to manage your SMSF property investments while staying compliant with these regulations.

Can I use my SMSF to purchase or invest in a holiday home?

Unfortunately, no. SMSF regulations strictly prohibit the investment in a holiday home if it is to be used, even occasionally, by the SMSF member, their family members (including those related by blood or marriage), or entities controlled by the member. Since we specialise in property investment in Bali, when our investors are using their SMSF for purchase, we make sure they understand and follow compliance rules that the unit or property cannot be used for holidays or personal use.

How can I ensure compliance in SMSF property investment?

The 'sole purpose test' mandates that your investment must be solely for the purpose of providing retirement benefits to the fund members. This means no personal use of the property is allowed.
There are strict investment restrictions; for instance, residential properties must not be acquired from related parties of the SMSF members.
Proper fund management is also essential, including accurate record-keeping, regular audits, and adhering to lending and borrowing rules if your SMSF takes a loan for property investment.
At GPFG, our qualified advisors are well-versed in these compliance areas and they can ensure that your fund and property investments not only remain compliant but also align with your long-term retirement objectives.

What are the risks involved in SMSF property investment?

Taking control of your own superannuation comes with greater risks, and you should always consult with a qualified financial advisor when taking any actions or investments.

Key risk factors include:

Compliance. You are responsible for compliance in your SMSF. It is very common for trustees to inadvertently breach these rules of compliance, simply because many trustees are not aware of the rules until their fund is audited.
Cash flow management. The property investment isn’t particularly liquid, so it's crucial for the fund to maintain sufficient liquidity to cover various expenses like loan repayments, insurance premiums, property-related costs, and potential retirement payouts.
Market volatility. Property values can fluctuate, impacting fund value and retirement savings.
Higher loan costs. Loans for SMSF property tend to be costlier compared to standard property loans.
Tax loss limitations. Tax losses from the property cannot be offset against personal taxable income outside the fund.

Can I use my SMSF to invest in overseas property?

Investing in overseas property through a SMSF is indeed possible but comes with its unique set of complexities and considerations. This includes understanding international property markets, foreign investment regulations, and the impact on SMSF compliance. At GPFG we specialise in navigating these intricacies and we offer a range of property investment opportunities in Bali, which can be a lucrative option for your SMSF portfolio. Our experienced team can provide comprehensive guidance on these investments, ensuring they align with your SMSF's strategy and compliance requirements while tapping into the potential of the vibrant Bali property market.