SMSF: Buying a house

[dbs0810]

Hi all,

I know you are allowed to buy property so that is not an issue, but......

Looking at buying a house in Brisbane with the intent of renting it for 5-6 years and then maybe moving into it when we move down there.

Also looking at doing this as tennants in common with my partner.

So looking at doing 50% from my SMSF and 50% from her.

Anyone know if this is possible?

Obviously would need to sell my SMSF 50% if we decided to move in. Can I sell it to myself?

 

[kincella]

the smsf cannot have borrowings against the property....have not looked at it lately...but the ATO were not liking all the spruikers ideas at the time...there are ways around it...but not sure how much cost etc..
the next question is why ??? the smsf
assuming you have an smsf, and wanting to go into property
oh and too young to take the super
just buy the rental prop in your name...low interest rates etc

its a personal thing of mine....nothing against you, zillions do it...just a bit of paper....but how come people dont committ to marriage...but will buy a home together ???
I am from the old school...get married, then buy the house, then have the kids

 

[dbs0810]

the smsf cannot have borrowings against the property....have not looked at it lately...but the ATO were not liking all the spruikers ideas at the time...there are ways around it...but not sure how much cost etc..

Q3. I thought Super Funds could not borrow or charge their assets. Is this correct?

That was correct until amendments to the Superannuation Industry (Supervision) Act 1993 (SIS Act) were made in September 2007. Under the new Section 67 of the SIS Act, SMSF's can borrow providing the following conditions are satisfied;

The borrowed funds are used to purchase an asset (e.g. real estate)
The asset is held in Trust for the SMSF by another entity (i.e. the Property Trustee)
The SMSF must have the right to acquire legal ownership of the asset by making payments
The lender’s recourse against the SMSF must be limited to the underlying asset (i.e. the purchased property) not other assets of the SMSF


the next question is why ??? the smsf assuming you have an smsf, and wanting to go into property oh and too young to take the super just buy the rental prop in your name...low interest rates etc

Thought about that, but pretty much committed with my own loan were I currently live. If it became unrented it would be a struggle, but not for my SMSF.


its a personal thing of mine....nothing against you, zillions do it...just a bit of paper....but how come people dont committ to marriage...but will buy a home together ???
I am from the old school...get married, then buy the house, then have the kids[/QUOTE]

HAHAHA been married, bought a house, had kids, got divorced blah blah Second time around now.

 

[tommymac]

Will you be retired when you move in 5-6 years. If you are not retired you may not meet the sole purpose test. The sole purpose test states that your superannuation is solely for the purpose of funding your retirement.

If you plan to sell it to yourself before retirement, the ATO could argue that the purpose was to acquire a property for yourself personally and not solely for your retirement. Then your SMSF would be non-complying and taxed at the highest marginal tax rate (currently 46.5%).

If you were allowed to sell it to yourself it needs to be at arms length, meaning it would have to be at market value. If the property value increased you would require a larger loan and the loan interest would be non-deductible. Not really a good scenario.

The rules have changed on borrowing within SMSF's and you can now have borrowings within a super fund, but they have to be correctly structured via a warrant type structure, with a trust and a limited recourse loan. I don't know enough about the structure to explain it to you in this forum.

Speak to your accountant or financial planner for more advice because superannuation can become quite tricky.

 

[wonderrman]

I don't think you would be able to because of the sole purpose test - http://www.ato.gov.au/superfunds/content.asp?doc=/content/00148781.htm.

 

[dbs0810]

I don't think you would be able to because of the sole purpose test

Common breaches of the sole purpose test are:
seeking out an investment that offers a pre-retirement benefit to a member or associate,
entering into an arrangement to provide financial assistance or a pre-retirement benefit to a person or entity at a financial detriment to the fund.

What does this mean? It could be argued that any property bought breached this rule. "pre-retirement benefit" for the first 5-6 years it will be rented out as any normal investment property.

Hmmmm when I bought shares in Westpac I got all these share holder benifits. So based on this I can't use any of them because it could be viewed as "pre-retirement benefit "??????????

 

[Prospector]

Hmmmm when I bought shares in Westpac I got all these share holder benifits. So based on this I can't use any of them because it could be viewed as "pre-retirement benefit "??????????

Yep, correct!

 

[dbs0810]

Yep, correct!

Bugger. Never used so does not concern me, but a shame all the same.

Hmmmm the more I look into this the more cloudy it becomes.

Methinks time to seek paid help. Once done will let you know what the outcome is.

Q2. Can I occupy the property?

You cannot occupy residential property. If a member of the SMSF occupies the property the “in-house asset rule” would be breached. 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 SMSF to yourself after you retire.

Related entities of the SMSF can “occupy” commercial property owned by the fund as long as it is on normal commercial terms.

 

[Prospector]

Q2. Can I occupy the property?

You cannot occupy residential property. If a member of the SMSF occupies the property the “in-house asset rule” would be breached. 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 SMSF to yourself after you retire.
.

Now that bit I didn't know - I thought you would need to have bought it from the SMSF!

 

[Julia]

dbso810, it would be good if you had a read of this thread:

https://www.aussiestockforums.com/forums/showthread.php?t=2737

Unless you use the quote tags as Joe has described, it's pretty hard to follow which comments are yours and which those to which you are replying.

 

[dbs0810]

dbso810, it would be good if you had a read of this thread:

Unless you use the quote tags as Joe has described, it's pretty hard to follow which comments are yours and which those to which you are replying.

lets see

 

[awg]

Yep, correct!

I don't think you would be able to because of the sole purpose test

Common breaches of the sole purpose test are:
seeking out an investment that offers a pre-retirement benefit to a member or associate,
entering into an arrangement to provide financial assistance or a pre-retirement benefit to a person or entity at a financial detriment to the fund.

What does this mean? It could be argued that any property bought breached this rule. "pre-retirement benefit" for the first 5-6 years it will be rented out as any normal investment property.

Hmmmm when I bought shares in Westpac I got all these share holder benifits. So based on this I can't use any of them because it could be viewed as "pre-retirement benefit "??????????

Hi Prospector,

Are you implying that SMSF cannot do off-market share transfers of shares previously held in individual name?

I believe that is allowable

( I am not sure whether you are saying that, (or just talking of side benefits
such as discounts?)

 

[Taltan]

It can be done, the question is weather its worth it?

- The SMSF can borrow but it has to be arm's length
- The SMSF would have to sell you the property when you move in so you need to consider CGT, stamp duty etc. You can definately do this yourself
- The SMSF needs to be audited every year so the arrangement will probably increase your annual accounting costs

Overall could be a good idea depending on your age, funds in super and what state you are in. Main problems would be the higher compliance costs and the taxes on the later transfer from SMSF to yourself. Also need to take a close look at the sole-purpose test

The above of course is all just IMO.

Incidentally SMSF can borrow because the govt had to amend the legisaltion to allow SMSF to invest in T3.

 

[Prospector]

Hi Prospector,

Are you implying that SMSF cannot do off-market share transfers of shares previously held in individual name?

I believe that is allowable

Yep, definately allowable as we did this in the early days of our SMSF. The benefits of the discount cards is a problem.