Can SMSF Borrow Money?
Borrowing and buying property through your superannuation fund
- the lender can only seek repayment of the amount borrowed against the SMSF
- borrowing can only take place when an asset could otherwise being acquired legally in the even there were funds
- the SMSF holds the asset on trust
- the SMSF obtains a favorable interest in the asset from the beginning
- the SMSF has the legal right to obtain the title as a result of making payments
Benefit of gearing
- larger sum allowing diversification within SMSF if desired
- compounding return on SMSF assets
- the benefits of leverage
- tax advantages of super funds
- estate planning advantages of SMSF
- the effects of negative gearing
Things you need to take into account about borrowing in SMSF
Important considerations when choosing a gearing product:
- compliance and structure;
- fees; and
- Are the borrowed money and the assets tied together?
- Do you have a choice over the property
- Are you about to select the trustee?
- Do you have a choice is selecting the tenant?
- You need to take into consideration the cost of the loan which include:
- Are fees based on the current value of the real estate?
- Who charges what and why? Can you change them if you desire to?
- Can you auditor deal with it in a routine manner? Does he have experience with this structure?
- Are any costs associated with early payout?
You may choose to use the DIY route but you must consider whether you are lending at the required arms length rate in regards to the security and backing of the loan?
- Do you intend to pay off the loan?
- You also need to consider what happens when the loan is paid out.
- Will you be accountable for any capital gains tax?
- Are the proceeds of the sale tax free?
- Will you receive an exemption 20 years down the road?
- Is the asset a business real property?