Using Your Smsf To Purchase Property The Basics

If your SMSF is looking at purchasing property there are a number of issues that need to be taken under consideration

.

To begin with, your SMSF can purchase residential and non residential property. Residential property must be purchased at arms length what this means is that you cannot purchase residential property from any member of the SMSF nor from anyone associated with any member of the SMSF. That includes family members.

However non residential property can be purchased for full value from related parties so long as the property is let for business purposes only.

Obviously it makes sense to consult with an expert on all the legal tangles associated with what type of property to purchase and how best to go about it to gather the highest degree of benefits. Your Royale Capital Private Wealth Consultant can of course help guide you through all the complexities.

The process of finding a property to purchase is the same as anyone would look about for property to purchase. Once a property is selected it is important to make sure the property fits the criteria of the funds investment strategy. You must make sure that the level of investment in property is in line with the funds investment strategy, including diversification of assets, liquidity, and maximisation of member returns in the

fund. Consult with your Royale Capital Private Wealth Consultant to ensure you are proceeding with this properly.

The SMSF then obtains loan approval and the SMSFs own lawyer/conveyancer acts on the purchase in the ordinary way. The purchase must be in the name of the Property Trustee. The Property Trustee should be an arms length trustee from the SMSF Trustee and the members of the SMSF. This is to ensure that the transaction is not a facade, and the related party and in house asset rules are complied with.

The SMSF then pays the deposit, the balance purchase money, the legal costs and stamp duty. Once the purchase is completed the Property Trustee mortgages the property to the lender. The SMSF then manages the property asset the same as with any real estate investment.

It is important to understand that no member of the SMSF can occupy the property. If a member of the SMSF were to occupy the property the in-house asset rule would be breached. The in-house asset rule dictates that SMSF owners should not directly benefit from the money set aside for their superannuation until they reach retirement age. However, the SMSF can buy a property that the investor intends to live in after retirement. This is possible if you transfer the property from your super fund to yourself after you retire.

Making sure this is done properly and does not violate the in house asset rule is another area where your Royale Capital Private Wealth Consultant can help you skirt potential legal troubles.

by: Jason Burrows

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