29 Feb Tim’s Supplementary Guide to Buying Property with Super
The concept of buying a property with any self-managed superannuation fund is not new and has been available since the advent of superannuation. Recent changes allowing borrowing for investment inside of super have made the option far more attractive.
Purchasing an investment property inside of super is no different to purchasing a property through any other individual or tax entity. The same principles apply. There are some key differences that are important to note when considering investing property within your super fund.
- The superannuation fund owns the property and this is entirely separate from all personal assets of any member or associated party to the super fund
- All income and expenses associated with the property enter and must leave from the superannuation fund.
- A superannuation fund must have an investment strategy and that investment strategy must specifically include the ability for the superannuation fund to purchase direct property and how this plays a role in the overall performance and viability of the superannuation fund
- For a superannuation fund to receive the concessional tax considerations it must abide by specific and very narrowly construed legislation. You must ensure before you purchase a property that property will be in line with the trust deed of your super fund and with the underlying principle that it is designed to provide investment return and therefore eventual retirement benefits for the members of the fund
- The superannuation fund can use any income of the fund to service the investment property. Your employer superannuation guarantee contributions, personal contributions, investment return from other associated assets such as bank interest or dividends can all be used to service the investment property including any associated debt
- A superannuation fund can now borrow to purchase an investment property similar to the way you borrow in your own name or through another non-super tax entity
- There are restrictions as to who can occupy your investment property within superannuation. Residential property cannot be occupied with any member of or associated party of the superannuation fund. Commercial property can however be tenanted by a member of the fund or a party associated with a member of the fund
A Closer Look at Property Assets
Residential property – has always been a popular investment asset and works very well within the superannuation environment. The concessional tax treatment of income and capital gains makes residential investment property are worthwhile method of accumulating assets within super for your retirement. The same selection criteria of potential capital growth, age, location, desirable amenities regular income all apply when purchasing a property within the superannuation fund as they would external of super.
Commercial property – commercial property is another popular investment asset available to the superannuation fund. There is an exemption that allows a member of the fund to occupy the commercial property that it’s superannuation fund owns therefore this is an extremely advantageous to business owners who require business premises.