How a SMSF loan can help set you up for retirement

07 Feb, 2018
How a SMSF loan can help set you up for retirement

Investing in property is great way to build your nest egg. If you have a self managed super fund (SMSF), you can use its funds to do so. Even better, if you don't currently have sufficient cash in your super, you can get a SMSF loan with Red Rock to borrow the remainder.

What is a SMSF loan, and how can it help grow your retirement savings?

The basics of a SMSF loan

If you don't already have a SMSF, the first step is to set one up. Once this is done, you and any fund members can transfer your existing super's assets into the SMSF.

In terms of structure, the loan works like this. You, the SMSF trustee, choose a property to purchase. Another trustee purchases the property on the fund's behalf under an instalment arrangement. The fund then obtains a limited recourse SMSF loan and pays the deposit, as well as any other costs to complete to purchase.

The trustee that purchased the property then rents it out to an unrelated party - rental income, as well as super contributions from members, go towards the instalment payments. When the loan is finally paid in full, the legal title of the property is transferred to the SMSF itself.

When using a SMSF loan, there are some restrictions on the type of property you can purchase. Generally speaking, it will need to be metro real estate (residential or commercial) in a capital city. If in doubt, get in touch with your SMSF provider as to whether the specific property you have in mind will qualify.

The benefits of a SMSF loan

There are a number of upsides to purchasing an investment property with a SMSF loan. They include:

1. Reduced overall tax burden: interest on the loan is tax deductable, which can potentially reduce the fund's tax burden.

2. Limited recourse: in the event of a default, the lender only has access to the security property, not any of the fund's other assets.

3. Potential for lower capital gains tax: if a property is owned by a SMSF for more than 12 months, any capital gains taxes are subject to a 33 per cent discount (which results in a 10 per cent effective capital gains tax rate).

Contact us today for an an assessment of your SMSF options; we'll take your personal circumstances into account and make some recommendations on what we think would be the best option for you.