The basic concept of an SMSF (Self-Managed Super Fund), is to provide benefits for all of its members at retirement. It’s a trust where investments and finances are managed exclusively by the members of the group, and it also allows the trustee to have complete control over what to invest in, and that can even include the purchasing of a property.

A lot of Australians have switched over to a SMSF for a multitude of reasons. They happen to give more control and flexibility over their investments and superannuation, and they offer a great way to take advantage over tax concessions. SMSFs have experienced exceptional growth over the past decade, so now might be as good a time as any to jump onto the bandwagon.

Is It Right For You?

There are obviously some benefits in choosing a SMSF to invest in a property, although it can all depend on your actual personal circumstances.

While it’s certainly a wonderful option for most people, there can be particular cases where it’s not as good for others. Actually managing and understanding your superannuation requires a lot of time, knowledge, and of course, money. Prior to making this critical financial decision, it’s best to weigh up all of the possibilities, and if need to, seek professional advice. If you happen to do things incorrectly it can become very costly, so it’s always best to research carefully.

Benefiting from an SMSF

Holding property within an SMSF certainly has many advantages over actually owning the building in your own name. Some of the benefits that can be taken advantage of include, but are not limited to the following:

• Greater control over your superannuation;
• Increased flexibility over investments;
• Tax concessions;
• Lower management costs; and
• Ability to pool assets and resources.

SMSFs can provide enhanced flexibility in how you invest in your future and your retirement savings. As a member, you have the power to influence how investments are made and where assets are allocated. Another benefit is that you are given the ability to hold and even acquire such assets as listed shares, finances, and property.

A concessional tax rate applies to any earnings made from an SMSF. Therefore, all rent and any income received via an SMSF will be taxed at a maximum of 15%. A further reduction may be applicable, once the property has been held for 12 months or longer, whereby only a maximum of 10% tax is liable. An important thing to note is that once a person has a property from an SMSF, they are also required to comply with all laws and regulations that are set out within the Superannuation Industry Act.

You have the power and option to include up to 4 members into an SMSF. This is a great way to combine the assets into one super and therefore potentially decrease costs, as well as increasing the potential for compound growth on shared capital. Due to the extremely flexible nature of SMSFs, it can allow fellow members to take advantage of transferring the assets to another generation with the minimum amount of tax liability coupled with the increased protection of any assets.

Acquiring Property and Valuations

There are various methods of acquiring properties and assets using an SMSF. In cases where the fund has sufficient equity, the option is available to purchase the property. It is virtually the same circumstances which apply if you were to buy one personally or via a structured business practice. If however, there isn’t sufficient funds available, the option is available to borrow enough money to actually purchase a property outright. There are special rules that involve the borrowing of money through an SMSF.

It is also important that trustees know the exact value of all and any assets within their investments. By law it’s a requirement for all members to get a valuation of assets each and every year, and this includes the most common type of SMSF investment, properties.

Knowing the precise value becomes even more important once a member reaches pension age. For example, if there’s a significant undervaluation as well as a significant shortfall in the minimum amount of pension payment, the fund can be at risk of losing its tax-free status. Keeping on top of the valuations of assets is of paramount importance, and should be done by seeking the assistance of an independent property valuer.

Taking advantage of a SMSF can be an exceptional way to save a huge nest egg for your retirement, or even supplying the financial safety net for loved ones in the unforeseen circumstance of death. While it isn’t for everyone, it’s worth looking into and due to the complexity of the subject it’s well advised to seek professional advice.