Airbnb has become a popular way for property owners to generate income by renting out their homes or investment properties. With the rise of Airbnb, many investors are wondering whether they can buy an Airbnb property in a self-managed super fund (SMSF) in Australia — and if so, whether they’re a good combination.
Understandably, the income generated and capital growth prospects for Airbnb properties are appealing for SMSF owners, however, there are a range of factors that trustees must consider before purchasing an Airbnb residence under their self-managed superannuation fund.
Things to consider before purchasing an Airbnb investment property in your self-managed super fund
One of the major benefits of owning a self-managed super fund over an APRA-regulated fund, is the flexibility and control of your investment there are strict rules and regulations around what types of property can be purchased in an SMSF, and how the property can be used. SMSF trustees must consider superannuation law and all of the legal and tax implications of purchasing an Airbnb before they commit.
Sole purpose test
One of the key requirements is that the property must meet the ‘sole purpose test‘, which means that the property must be purchased solely for the purpose of providing retirement benefits to the members of the SMSF. This means that the property cannot be used for personal purposes or rented to family members, related parties, friends or business associates of the SMSF members. The property also needs to be rented out at the going market rate.
Before an SMSF trustee can come to any particular investment decision, they must first measure whether the investment opportunity aligns with the SMSF investment strategy. The investment strategy is a vitally important component of SMSF management as it sets out how the fund intends to meet the retirement objectives of each of its members.
The rental income is undoubtedly the main drawcard for SMSF trustees to invest in an Airbnb under their SMSF. With the average annual revenue of Airbnb’s in Australia close to $50,000, it’s little wonder SMSF trustees are drawn to invest in Airbnb properties under their fund. With strong rental income, it’s important to consider how this income is going to be invested back into the SMSF (remembering that rental income forms part of the fund’s taxable income).
The rental payments need to be paid into a bank account that’s held in the name of the SMSF, so it’s likely that if you’re borrowing the funds to invest, the income generated from the property will go to meeting the loan repayments, as well as other ongoing expenses for the property. While steady income is a great way to help build retirement savings for the fund members, it can also be helpful once members arrive at their pension phase and start drawing an income from the SMSF, itself.
Of course, the other form of return sought by property investors is the capital gain that’s possible with an investment property. Over the long term, the hope is that the investment property value increases significantly, which goes toward boosting your total fund value.
However, once the SMSF trustee looks to sell the property, the capital gains tax liability must be considered. Thankfully, a self-managed super fund receives a one-third discount on capital gains tax!
Maintenance of the property
An Airbnb property is going to require a lot more maintenance than a standard investment property being leased on the rental market, thanks to the cleaning required at the end of each guest’s stay. If the SMSF trustee self-manages the Airbnb, then it’s vital to remember that the trustees are not able to be remunerated for the services performed in relation to the SMSF. (Nor can a related party to the fund). This includes renovation services, maintenance or repairs.
Buying a residential property as an Airbnb may be considered a commercial property under GST law
Something that many people may not immediately realise is that the ATO may consider the property to be a commercial residential premises if the SMSF trustee’s intention is to list the property as a bed and breakfast or Airbnb. Under the ATO ruling GSTR 2012/6, if the ATO deems that the fund is providing commercial residential accommodation, then the SMSF Airbnb activities will be treated similarly to hotels and motels. What this means for SMSF owners is that they will need to register the fund for GST if the estimated annual turnover is greater than $75,000.
SMSF borrowing rules
Another important consideration is the financing of the property. SMSFs are not allowed to borrow money to purchase property, except under limited circumstances known as “limited recourse borrowing arrangements” (LRBAs). This means that the SMSF must have sufficient funds to purchase the property outright, or use an LRBA to borrow money to purchase the property.
If the SMSF uses an LRBA, there are additional requirements that must be met, such as the property being held in a separate trust and the loan being a limited recourse loan. This means that if the SMSF defaults on the loan, the lender can only seize the property held in the trust and cannot go after any other assets held in the SMSF.
Access SMSF Loan Experts when purchasing an SMSF property
There are many factors to consider before you buy property within your SMSF. However, once you’ve made up your mind, accessing the best limited recourse borrowing arrangement structure for your Airbnb purchase is made easy with SMSF Loan Experts.
Talk with our experienced team to learn more about your options, and how we can help you make your Airbnb objectives come to fruition.