A self managed super fund (SMSF) is a trust structure, useful in the management of the members' retirement savings. SMSFs provide financial benefits to the members. Unlike other funds, as a member of an SMSF, you are also the trustee, meaning that you together with other members run it for your own benefit, and you have to comply with the laws involved, such as tax laws or super laws among others. Your SMSF has various options for investment, one of which is property investment. If you want to use your SMSF to acquire property, here are 5 essential things you should know concerning the acquisition.
Compliance with the rules is mandatory when acquiring property through SMSF. Therefore, be keen on all the rules to make sure you are not missing a point. If you are planning on getting away with any of the rules when acquiring your property, you better think again because penalties are set for non-compliance. These penalties are often severe and may set you back on your fund's value depending on the percentage. Imagine the penalty is set at 50%; what a loss, right?
It is essential that you understand the rules governing property acquisition to avoid issues of non-compliance. For instance, the sole purpose of acquiring property should be to provide retirement benefits to the members of the fund by generating wealth for them (through supporting the fund's strategies of investment). This means that you can't acquire property for yourself or your family to live in.
Besides, you may not get the property you want if you intend to obtain it from related parties of the fund members. Therefore, understand all the rules of acquiring the property before you proceed. These rules are published online by organizations associated with management of SMSFs. Alternatively, you can contact or visit your Client Manager for the same.
Costs are a must-know before you sign up, and you should identify all costs. However, what are "all costs"? Find out the stamp duty, bank fees, advice fees, upfront fees, legal fees, and the costs for the ongoing management of the property.
You can borrow from the limited resource borrowing arrangement (LRBA) if you don't have enough savings in your SMSF, but you still want to buy an investment property. This will help you to attain your goals of property investment. The LRBA is a particular loan for an SMSF for acquiring or repairing assets. However, certain conditions apply when using this loan. There is an online portal for SMSF members where you can set up your LRBA with assistance from your Client Manager. Here you can easily find all the conditions required.
As an SMSF trustee, you may overlook the ownership obligations, such as the need to insure the property. Be sure you have insurance cover against damage to the real property that your SMSF owns.
For more information on SMSF or the legalities behind purchasing property, contact professional lawyers, such as those at Hollingworth & Spencer Lawyers.
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