What is a Self Managed Super Fund (SMSF)?
A self-managed super fund (SMSF) is a savings account for your retirement that you manage yourself, rather than one that’s managed by a superannuation provider.
The do-it-yourself super method allows you to be more closely involved with what you invest in, and offers tax benefits that major providers do not.
Can you use your Self Managed Super Fund (SMSF) to buy property?
SMSFs can be used to buy investment properties and have become an increasingly popular choice for Australians in recent years.
A self-managed fund can even use borrowed monies to purchase a single asset.
This is often done through Limited Recourse Borrowing Arrangements (LRBA), which are driving the popularity of property purchases in SMSFs.
This specific method involves the SMSF trustees receiving the beneficial interest in the purchased asset, while the legal ownership is held on trust.
The upside is that, with an LRBA, your whole super fund is not at risk if the loan is defaulted. There are also restrictions on the way a debtor can recover their funds.
What are the advantages?
There are significant advantages to owning a property through a SMSF.
First, your super fund will be taxed at 15 per cent, which is considerably lower than most people’s personal tax rates.
Second, your capital gains tax will also be discounted.
If the property is sold during the accumulation phase, the capital gains tax is calculated at a discounted rate.
If the asset is sold while the super fund is in its pension phase, you don’t have to pay any tax on the sale.