Purchasing property with Super money

Purchasing property with Super money is a great benefit of utilising the SMSF. There are several advantages:

  • It provides funds for member to purchase property;
  • Rental income is taxed at 15%;
  • If member reaches age 65, rental income is tax free and capital gain on sale of property is also tax free;
  • Asset protection;

There are also disadvantages:

There are several ways to purchase property with super money:

1) Purchase property outright

If there are sufficient funds within the SMSF, member can simply purchase the property outright given that it is an investment property rather than a personal home as this would breach the in-house asset rule.

2) Purchase property under limited recourse arrangement

This is to purchase the property via a unit trust and the SMSF hold units within the unit trust. The unit trust is allowed to borrowing money to fund the purchase of the property given the only recourse by the lender is limited to this property. (see investment restrictions for more details)

3) Tennants in common arrangement

Under this arrangement, the SMSF will contribute a certain amount of deposit and the member will personally pay for the balance either by way of cash or using their personal home as a security on borrowing. In this way, the SMSF and the member receive rental income based on their proportion of contributions. When the property is sold, SMSF pay 15% capital gain tax on its portion (with 1/3 discount if the property was held more than a year) and the member will be liable for the remaining portion of capital gain tax (with 50% discount if the property was held more than a year)