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Borrowing under a Self Managed Super Fund (SMSF)
Property investment strategies based on negative gearing used to be all
the rage – with those who fancied lower risks ensuring that they paid
their house off fully first. Those ideas are still important, but the
changes made over the last five years have really tilted the playing
field towards a new player – superannuation. Many people in their
40s and 50s are realising that they can transition to a flat tax of 15%
and often lower by increasing their use of superannuation. It may
not be very fair to those slaving away paying much higher rates of
personal tax, but that’s the way the system is set up.
At Peach we want you to be aware of the issues so that you can be in the driver's seat.
The addition of Section 67(4a) of the Superannuation Industry
Supervision Act (SIS Act) now makes it possible for SMSFs to
borrow. This is exciting news however you have to tread very
carefully through a minefield of potential fees and extra costs not to
mention the possibility of double stamp duty and capital gains tax
(CGT). First and foremost you need good, informed legal,
financial and mortgage advice.
This page is not intended as advisory, it is a superficial outline of the process and structures required.
The first part of the process is to get good financial advice.
Keep in mind that a financial advisor earns commission on finance
products and the average financial advisor works under the licence of a
company as an employee or authorised representative and this means that
if the company is XYZ Bank and Financial Services for example they will
be promoting XYZ products, and as a result they may not be
experienced or focused on property as an avenue for investment.
In such a case you should consider an advisor who holds their own
licence and can assess your SMSF options in the light of all investment
possibilities.
Once you have the correct advice and you are sure that borrowing is the
right path for your SMSF you then need to get specialist legal
assistance. So in addition to your existing Super Fund Trust you
need to establish a Debt Instalment Trust (DIT). The
structure of this doesn't need to be complicated and in fact it can be
set up as a 'bare trust' with minimal reporting overheads. The
structure of the trust deed is vital to not only comply with SIS Act
but also to ensure there is no stamp duty or CGT liability when the
asset is transferred from the DIT to the SMSF on the final
payment. So it is vital that you have the trust structured
correctly and in place before you move to the next step, buying an
asset.
The asset can be residential or commercial property, it may even be
possible for it to be artwork. It cannot be an asset that you
currently own, so for example you can't finance the existing family
home - the arm's length rules still apply and the borrowing must be
undertaken in order to purchase an asset in the super fund. The
loan by it's nature must provide the lender with limited recourse ie:
the lender can recover the debt from the asset offered as security but
cannot access any other assets in the super fund. The lender
cannot go after other assets held by the SMSF. This does not mean
that your SMSF funds are protected, after all you are possibly going to
have to offer a substantial deposit and in the worse case those
funds are exposed. There are only a few lenders offering
limited-recourse products and even then most will require an additional
guarantee from the fund members.
The loan product features, the rates and fees vary widely and that's
where we come in. As in all scenarios there is more than one way
to skin the cat, so why not call us now for a discussion on what we can
do for your SMSF borrowing. We may also be able to put you in
contact with the other professional services that you will need.
Click here
to go to our express inquiry or call us now on 1300 137 586. We're confident you'll
appreciate the Peach Home Loans service!
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