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The allure of purchasing property through a Self-Managed Super Fund (SMSF) has captivated many investors. However, the rules and regulations governing this investment strategy are far from straightforward. This article aims to demystify the complexities surrounding SMSF property investment.
To venture into this investment avenue, a combined fund balance of approximately $250,000 with your partner is generally required. Financial institutions often set this as a minimum balance for lending to an SMSF.
Living in a residential property purchased through an SMSF is not an option, regardless of your relationship to other trustees. This rule also extends to renting the property to anyone related to the trustees.
Commercial properties offer more flexibility but come with their own set of rules. These properties can be sold to an SMSF by its members and can also be leased to SMSF trustees or related individuals or businesses. However, the leasing must be done at market rates and under standard commercial agreement terms.
Purchasing property through an SMSF comes with specific tax obligations. The fund is required to pay a 15% tax on rental income. For properties held longer than 12 months, a one-third discount on any capital gain is applied, reducing the capital gains tax liability to 10%.
Non-compliance with SMSF rules can result in severe penalties. Trustees are personally liable for any decisions made by the fund, and penalties can include those issued by the Australian Tax Office (ATO) and stamp duty implications.
For a comprehensive understanding of SMSFs and property investment, request a copy of the SMSF Information Kit by emailing roy@rjsanderson.com.au.
This article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.