Did you know that you can buy a farm with your self-managed super fund (SMSF)? A ‘tree change’ has been on the cards for many Australians over the past couple of years, looking to access fresh air, start their own farm and avoid COVID ridden cities. While it’s little wonder why people are drawn to rolling hills and green pastures, you may be left wondering how it is you can use your self managed super fund to purchase a rural oasis.
As experts in SMSF loans for rural properties, we are more than happy to outline the major criteria in how you can make your farm change a reality.
Why can I buy a farm with my SMSF, but not a family home?
You’re probably aware by now that using an SMSF for the purposes of purchasing residential property to live in is not allowed. So we understand if you’re unsure about how to purchase a farm, given you’d likely be intending to live there. Well, it all hinges on a clause within the ‘business real property’ rules.
Business Real Property simply means any buildings or vacant land that are used only for business purposes. However, in the case of a farm, you can live in a house within the property provided that it’s sitting on land of no more than two hectares. To remain within the SMSF rules, the entire property can’t be solely used for private or domestic purposes.
The Australian Taxation Office (ATO) is the best place to go for more information on Business Real Property rules.
Your farm must suit your self-managed super fund investment strategy
If you’re looking to take out an SMSF loan to buy a farm, then it’s important to remember that it must fit within your fund’s strategy. The investment strategy of your SMSF sets out your fund’s overall investment objectives and also which assets it allows. If purchasing commercial property or residential properties within your SMSF runs against your strategy, then it may be time for the SMSF Trustee to consider seeking independent advice to review your fund’s strategy.
We can put you in touch with professionals to help if need be.
Check that your farm meets the Sole Purpose Test
It can be easy to get carried away with excitement when looking to purchase commercial property or residential investment property under your SMSF and lose sight of the big picture. The Sole Purpose Test means that your self-managed super fund has to be maintained for the sole purpose of providing retirement savings to its fund members (or their dependents in the event the members pass away prior to retirement).
If your SMSF is deemed to have breached the Sole Purpose Test, it loses the tax concessions granted to super funds, which can lead to disastrous financial consequences. It’s therefore in your best interest to make sure that purchasing a farm (or any other investments, for that matter) meets the ATO’s sole purpose test.
How much can I borrow in my SMSF to purchase residential property or commercial property?
When you go to borrow money, the first question is often, “how much money can I get?” Similar to when you apply for a home loan, the loan amount will depend on several different factors, including:
- – your financial situation,
- – cash flow,
- – any rental income,
- – the market value of the farm, house or commercial premises,
- – the lending criteria at the time you apply.
Typically, when borrowing to invest in super, you can access around 80% of the residential or commercial investment property value. This makes it critical to understand how a lending transaction may impact other assets your fund holds.
Don’t forget to factor in other costs similar to home loans, such as fees and stamp duty.
If you’re ready to reap the benefits of competitive interest rates and start the process of your property loan, then it makes sense to talk to the experts. We can help make your SMSF property investment dreams a reality and can source you the best credit provider for your farm purchase! Contact SMSF Loan Experts today.