Purchasing investment property within your SMSF (self-managed superannuation fund) can be an effective way to minimise tax rather than investing in a property in your personal or company name. Here we explain what you need to consider in determining whether it is the right choice.
Over the years, there have been mixed reviews on whether individuals should consider using their SMSF for property investments and whether it is the right long-term decision for retirement.
Property can reward investors with capital growth and steady rental income. However, when it comes to property and SMSFs, the investment needs to be carefully considered.
What types of assets can a superannuation fund purchase?
Superannuation funds can borrow to fund the purchase of investments in limited circumstances. Where certain conditions are met, a superannuation fund can borrow to purchase any asset that it is otherwise able to purchase outright.
The most common assets purchased under these arrangements are commercial and residential property.
What are the benefits of purchasing an asset with your superannuation?
Holding an asset in superannuation has many benefits when compared to other asset holding structures, including:
- Income tax rate of 15%
- Capital gains tax rate of 10%
- Repayments on the loan can be achieved tax effectively via deductible superannuation contributions.
- Superannuation provides a higher level of asset protection than other structures.
- Increases retirement benefits.
The establishment of a borrowing within a self-managed superannuation fund can provide long term taxation benefits as well as increasing your retirement savings.
Should I use my super to invest in property?
There is no right or wrong answer; it can be the right choice for some but not for all. Like all investment opportunities, they come with risks, and some risks are unique to SMSFs that need to be considered.
If you are interested in potential investment, Morrows Private Wealth can provide detailed advice concerning the advantages and disadvantages of a superannuation borrowing arrangement. Reach out to our experienced advisors to learn more.