SMSF Loans for Borrowing and Lending

SMSF stands for Self-Managed Super Funds and SMSF loans are becoming more and more popular as it enables people to manage and control their own superannuation. As the SMSF name suggests it lets you manage your superannuation yourself. It is possible to use your superannuation to purchase property and to have SMSF lending and borrowing to assist in purchasing the property with an SMSF loan. Establishing a SMSF to purchase property is a lot more complex than purchasing a normal investment property and therefore careful consideration should be taken before proceeding with SMSF borrowing. It is important to make sure that such an investment structure such as buying via SMSF loans is right for you and something you should be speaking to a financial advisor about the lending process before proceeding. It is a more costly set up and although it potentially has long term tax benefits it is not a short term investment strategy and cannot easily be refinanced. Borrowing and lending via your superannuation has strict guidelines and is called borrowing through a ‘Limited recourse borrowing arrangement’

Certain rules apply and should be considered prior to going down the SMSF loans path

  1. You must only use the lending funds towards retirement benefits.
  2. You must set up a trust and act as trustee or director. This position will have many legal steps you need to follow.
  3. Have an investment strategy set up and ensure the fund will meet your retirement needs.
  4. Keep extensive records as you will have an annual audit by an approved SMSF auditor.
  5. The increased set up costs.

When setting up an SMSF and purchasing property with your super you should consider the below SMSF property guidelines

  1. The residential property should not be purchased from a related party or member.
  2. It has to be for investment.
  3. The property cannot be lived in by a family member or related party.
  4. You are not allowed to make improvements to the property. You can only repair the property.

As these arrangements are costly and hard to get out of you should ensure to get advice from a financial planner prior to setting up an SMSF. You will also need the help of a team of experts including a solicitor, an accountant and a mortgage broker to set up the SMSF lending.

If you would like more information on SMSF please feel free to contact us