Common ways to purchase property in your SMSF
There are a number of ways you can purchase property through your SMSF. I have highlighted the most common ways below;
Purchasing the property directly
This is the easiest and cheapest way to purchase a property in your SMSF. You don’t have to set up any structures or entities, the SMSF simply uses its cash to purchase the property.
Limited Recourse Borrowing Arrangement (LRBA)
This is the most complex way to purchase a property but it gives the ability for the SMSF to be able to borrow money from either a third party lender like a bank or a related party. A Bare Trust is set up to hold the property with the SMSF being the ultimate beneficiary. Once the loan is repaid the property can be transferred into the SMSF without any capital gains tax or stamp duty. It’s very important that this structure is set up correctly.
Investing with another person
If your SMSF doesn’t have the cash and you don’t want to go down the LRBA route, your SMSF can purchase a property as Tenants in Common (TIC) with a related or third party. For example, if the property you want to buy is $500,000, with a TIC, you personally can provide $250k and use $250k from your super fund. All income and expenses are shared depending on the ownership percentage. Extra care needs to be given with this option as you could breach the in house assets rules.
There are advantages and disadvantages in the above I have only touched on the basics on each option. If you’re thinking about purchasing a property through your SMSF and would like some guidance please call
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@nac.com.au
Cayle Petritsch
SMSF Specialist Advisor
T: 02 9984 7774
E: caylep@nac.com.au
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