Self-managed superannuation funds (SMSFs) are booming, with more than half a million funds holding $557 billion worth of assets as of June 2014. Combining a love for managing our own super with a love of property, how can an SMSF be best used to buy an investment property, including a serviced apartment? While the same basic rules apply when buying any investment property, using an SMSF requires careful consideration of tax and other regulations.
According to the Australian Taxation Office, a property acquired through an SMSF must satisfy the following basic rules:
The property must satisfy the fund’s investment strategy and trust deed, taking into account the personal circumstances of all fund members, their age and risk tolerance, as well as being acquired on a commercial “arm’s length” basis. For this reason, a serviced apartment acquired from a reputable vendor at arms length is well suited to SMSF investors.
Using an SMSF increases your property buying power by pooling members’ funds, as well as giving you direct control over the investment. Given the long-term nature of property and super, it makes sense to consider secure investments such as serviced apartments with reliable rental income, lower costs and guaranteed returns to ensure the SMSF can fund the loan. The maximum tax rate paid by an SMSF on rental income is only 15 per cent, compared to the current top marginal tax rate of 45 per cent, and capital gains are also subject to tax concessions. This is in addition to the tax benefits of owning an investment property, including depreciation and the potential for negative gearing.
Serviced apartments can prove particularly suitable for SMSF investors, given their satisfaction of a number of essential requirements:
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