considerations when purchasing a property in an smsf?

if you want to buy a property in an smsf, you must first understand the complex rules around this.

The primary purpose of an SMSF is to provide retirement benefits to its members. This means that buying a property with a SMSF therefore must take into consideration the following 3 things:

1) MEET THE ‘SOLE PURPOSE TEST’

This means that your SMSF must be solely for the purpose of providing retirement benefits to the members. This means that it cannot be for any residential purpose, not even a holiday home,

This property must be bought on an arm’s length basis. This means that the property must be bought at market value to reflect its true value.

2) BORROWING RESTRICTIONS APPLY TO SMSF

There are also borrowing restrictions which apply when using a SMSF to invest in property. If the SMSF does not have sufficient funds to buy the property outright, it may be able to borrow money to do so. It will require the Directors of the SMSF to personally guarantee the debt to be repaid. SMSF loans can be tricky, and it is vital to have an experienced broker to assist in this transaction.

SMSF loans will require independent legal advice.

3) COSTS ASSOCIATED TO THE PROPERTY MUST BE PAID OUT OF THE FUND

If you are looking to buy a residential property through a SMSF, you will need to consider the costs of managing and maintaining the property and the fund, as those costs will need to be paid out of the fund. This can impact the retirement benefits of its members.

WHAT SHOULD YOU DO IF YOU ARE PURCHASING A PROPERTY IN A SMSF?

1) See your Accountant to ensure that the investment property you are intending to purchase is compliant with the SMSF rules.

2) Before signing a Contract, have it reviewed by a Solicitor to ensure that the Contract is appropriate for the SMSF regulations.

3) Understand the personal guarantees required for an SMSF loan.

4) Allow additional time for finance to be approved.

how can a property lawyer help me when buying in a smsf?

It is vital before signing any contract to obtain legal advice from a qualified property lawyer who has experience in handling SMSFs. Your Lawyer and your Accountant will collaborate to provide you effective advice with respect to your purchase.