There are several steps and considerations to investing in direct property within self-managed superannuation funds. A common query is, ‘can I buy a house and land package with my SMSF’? While it is possible to do so, buying and building on vacant land can introduce some added complexity to what can already feel like a labyrinth of legislation.
Complexity doesn’t need to equal complication when purchasing property with super. In this article, we talk about buying and building on land with an SMSF and how SMSF Loan Experts can help guide your property investment journey.
Purchasing property with super
One of the drawcards for superannuation investors to choose a self-managed super fund structure is the potential for greater control, transparency and flexibility over where their retirement benefits are being invested. The ability to purchase direct property on the residential and commercial property markets is utilised by many SMSF trustees.
Most SMSFs require funding to purchase an investment property (typically because they don’t have the capital available to purchase a property outright and remain compliant with the Australian Taxation Office (ATO) rules around in-house assets). Under superannuation law, SMSFs must use a limited recourse borrowing arrangement (LRBA) to borrow money.
What is an LRBA?
A Limited Recourse Borrowing Arrangement (LRBA) is a financial arrangement (a separate trust) in which a self-managed superannuation fund (SMSF) borrows money to invest in assets, typically property. The key feature is that if the SMSF defaults on the loan, the lender’s recourse is limited to the assets acquired with the borrowed funds, protecting the remaining assets within the SMSF from being used to cover the debt.
Is a house and land package available to SMSF investors?
An SMSF has the option to secure a loan for acquiring a house and land package, provided that both components are acquired in a single transaction and are treated as a unified, single acquirable asset. House and land packages must be purchased together under only one transaction to be considered a single acquirable asset. However, traditionally, the loan contracts come in two parts: one for the land and one for the construction. At SMSF Loan Experts, we can act as an intermediary to convert the two-part contract into a one-part contract for a single asset, ensuring the house and land package is legally sound.
Some examples of a single acquirable asset include:
- – A property on a single title.
- – A collection of shares of the same class in a single company.
- – A collection of units that have the same fixed rights in a trust that are bought and sold as a single unit.
Other factors to keep in mind when buying land and building through your SMSF
- – Your SMSF must continue to meet the sole purpose test in order to access the tax concessions within the superannuation environment. The sole purpose test ensures that a super fund’s purpose is solely providing retirement benefits to fund members. This is why your SMSF cannot buy property to then live in, as this breaches the sole purpose test.
- – Buying property must be provisioned for in the SMSF Trust Deed and must be reflected in the SMSF’s investment strategy.
We help SMSFs borrow to invest in residential property and commercial property
If you’re looking at SMSF borrowing for an SMSF property purchase, pick up the phone and talk to the team at SMSF Loan Experts. We help source the best lending structure and loan for your SMSF property investment objectives.