Using a self-managed super fund (SMSF) to purchase property is becoming increasingly popular, so it is in your best interest to be aware of the restrictions, advantages, and requirements. Buying property through super has the potential to easily grow your medical practice, amplify your retirement savings, and benefit from special tax treatment. We have established this guide to help you understand the regulations and limitations so you can decide if buying property through SMSF is the right choice for you.
How does it work?
If you are thinking about buying property through super there are two distinct categories of property: investment properties and commercial properties that you need to be aware of. Buying property through SMSF is a common tactic for medical specialists and is advantageous towards investing in your practice, but you need to have a good understanding of the procedures to make the best decisions.
Buying property through SMSF, any type of property, must follow these rules:
- the property is required to contribute to the fund members retirement
- property may not be procured from a relative of a fund member
It is possible that buying property through super may be accomplished straight-out if your SMSF has the cash in hand. Alternatively, your SMSF may require a loan to purchase an investment property and loans taken out by SMSFs are called “limited recourse”. Limited recourse loans are a form of protection that prevents assets in your SMSF from being sold off and triggers if your fund defaults on the loan.
The property needs to be rented by someone unrelated to you, fund members, or relatives of fund members. The property is there to help build your retirement fund and buying property through super to use it as a holiday home is illegal. Moreover, placing a property that you currently have into an SMSF, through financial backing or funding improvements, is not allowed.
Using super to buy commercial property has many benefits to medical specialists and is a sound strategy that will help your practice grow. The primary rule governing commercial property is similar to the one covering investment properties. It must provide retirement benefits to the members.
There are a few key differences that make buying property through your super advantageous to medical professionals. Commercial properties may be leased by fund members as well as to people or businesses related to them. Additionally, it is legal to sell commercial properties to SMSF members, which means it is allowed to buy a property and pay rent directly to the SMSF. Pre-existing properties may be contributed to the SMSF if a member of the fund operates the business.
Using super to buy commercial property will help offset the costs of building your medical practice and helps channel funds into your retirement, not someone else’s. There are additionally tax benefits as well.
A long-term benefit of using your SMSF to purchase property is that when members begin to receive a pension all rental income or capital gains commencing in the fund is tax free. Moreover, property bought through SMSFs pay 15% tax on rental income and any property held for thirteen or more months receives a discount on capital gains when it is sold.
Additionally, interest payments are tax deductible if a loan is used to buy the property and if the property creates a tax loss, the loss cannot be used against personal income, not in the fund.
Start developing your practice
The rules and regulations behind using your super to buy property can be complex so make sure you seek the advice of medical business loan professionals. Medipro Capital Finance offers home loans for medical professionals as well as investment loans and commercial financing. We are here to help you and your practice develop to their fullest potential so please call us on 1300 375 626 or get in touch online.